This paper analyzes the mechanism of technology effect of foreign direct investment in Services. Based on DEA-Malmquist index method，this paper measures total factor productivity index，technological progress index and technological efficiency index of service industry in Guangdong between the years 1985-2010. Using the above three indexes as explained variables，we make an empirical research on technology effect of foreign direct investment in services. The results show that foreign direct investment in services has significant technology effect，and this technology effect is exerted mainly by promoting technology progress and improving total factor productivity. However，technological efficiency effect is not significant，and it seems that the driving force of technological efficiency improvement comes from domestic factors. Moreover，there exists “Technical threshold effect” and “Adaptation effect”. Only when domestic service enterprises cross the technical threshold and adaptive phase，technology effect of foreign direct investment could be completely revealed.