The development of the digital economy will impact the urban-rural income gap. Based on urban and rural income data from China’s prefecture-level cities between 2013 and 2019, this paper examines the influence of the digital economy on the urban-rural income gap and analyzes the impact channels of the digital economy from the perspective of industrial structure. The research finds that the development of the digital economy has narrowed the urban-rural income gap overall. The analysis of impact channels reveals that the digital economy narrows the urban-rural income gap by promoting the upgrading of industrial structure. The heterogeneity analysis indicates that the influence of the digital economy is only transmitted through the upgrading of the manufacturing structure, and it has a dual nature. While narrowing the urban-rural income gap, it also directs manufacturing towards capitalization and high-skill development, thereby undermining its positive effects. Further discussions suggest that vigorously investing in educational infrastructure and adopting a gradual approach to industrial upgrading can effectively mitigate the negative impacts of the digital economy. On the one hand, this research enriches the theoretical understanding of the digital economy and urban-rural income inequality; on the other hand, it also provides policy insights for the integrated development of urban and rural areas in the digital economy era.