Innovation and entrepreneurship is the theme of today’s era and are powerful engine to promote a new round of high-quality development of the national economy. The level of entrepreneurial education has become a key indicator for evaluating the level of operation of applied undergraduate institutions and the quality of comprehensive education. This paper focuses on applying the gray correlation algorithm in the evaluation system of college students’ entrepreneurial activities based on innovation in applied undergraduate institutions. Firstly, we understand the development process and principle of the gray correlation algorithm, establish the gray correlation algorithm model, collect the index data of many applied undergraduate institutions(primary index: 5, secondary index: 21) and analyze them. The analysis shows that the correlation degree of the quality of education in the subject of college students in 8 universities is E (0.3178) > G (0.240) > F (0.1409) > H (0.04412) > D (0.0398) > B (0.390) > C (0.0389) > A (0.0263), and the analysis results are helpful for us to grasp the main contradiction of the problem and improve the quality of education in the subject. The main contradiction of the problem, improve students’ entrepreneurial ability based on innovation and contribute to the improvement of Chinese international economic status.