Why do some locations with strong legal institutions attract foreign direct investment while others struggle to compete? This paper argues that the answer lies in subnational legal heterogeneity and its interaction with local economic conditions. Drawing on a panel dataset of 96 Chinese municipalities from 2013 to 2017, I combine comprehensive municipal rule-of-law assessments with FDI inflows to show that legal quality has conditional rather than universal effects. Stronger rule of law — particularly policy transparency and public satisfaction with government — attracts foreign investment in high-growth cities, but deters it in slow-growth municipalities where compliance costs outweigh benefits. The findings challenge the policy consensus that legal reforms uniformly improve investment climates and suggest that institutional reforms should be calibrated to local economic conditions.