Abstract: The purpose of this paper is to study the relationship between industry cluster, knowledge flow and competitive advantage of firms in cluster based on the confirmatory factor analysis of questionnaires of a textile industry cluster. It is demonstrated that knowledge flow among firms in cluster has intermediary effect on the relationship between the textile industrial cluster and the competitive advantage of the firm in cluster. The results also show that the vertical co-operations has significant positive influence on the knowledge flow and competitive advantage, the shared resource has small influence on the competitive advantage of the firm in cluster, and their status in value chain may influence coefficients of path between knowledge flow and competitive advantage.