Because of the existence of urban-rural gap, the impact of the digital dividends brought by internet development and popularization on the income of urban and rural residents has heterogeneity and time-varying effect, and further has nonlinear influence on urban and rural income gap, but this impact is restricted by urbanization level and expresses regional and group heterogeneity. The empirical analysis by using the panel data of China’s 31 provinces, districts and municipalities during 2003-2018 shows that the internet development has significantly inverted “U” type nonlinear influence on urban and rural income gap, that the integrated development of internet and urbanization can produce stronger suppressing effect on urban and rural income gap, and the promoting effect of internet development on the income growth of rural residents is bigger than that of urban residents. The impact of internet development on urban and rural income gap is restricted by urbanization development level, the urbanization level of the most of provinces, districts and municipalities has not reached the optimal critical value and has certain improvement space. Therefore, we should pay attention to the overall promotion and regional development difference of internet development, make efforts to multi-dimensionally reduce digital gap between urban and rural areas, increase agricultural and countryside development vitality, use institutional innovation to boost the bidirectional flow of urban and rural factors and factor dividend release, and effectively narrow urban-rural income gap by the integrated development of internet and new-style urbanization to promote the coordinated development between urban-rural areas.