There is a large gap between China’s urban and rural income. The urban rural income disparity (URID) is particularly prominent. This paper deeply studies the interaction between sustainable urbanization (SU) and the URID in China by taking the construction of a new urbanization plan with Chinese characteristics suggested in China’s 14th Five-Year Plan as the research background. Firstly, the paper puts forward the hypothesis of an inverted U-shape between SU and the URID through impact path analysis. Secondly, a nonlinear panel regression model (NPRM) and a threshold regression model (TRM) are constructed to test the hypothesis. Research findings: (1) The NPRM shows that the quadratic coefficient is significant and negative, so the assumption is true, and an inverted U-shaped relationship exists. (2) The result of the TRM shows that SU passes the single threshold test, and the hypothesis of a U-shaped relationship is tenable. (3) Economic development has narrowed the URID; economic openness and road network construction have increased the URID; education has no significant impact on the URID.