The development of transportation infrastructure plays a pivotal role in the regional economy from multiple dimensions. The aim of this paper is to examine the relationship between transportation infrastructure development and income inequality in urban and rural areas of China. The study utilizes panel data from 30 provinces, spanning the years 2010 to 2020, and employs the spatial Dubin model to measure and test the impact of transportation infrastructure on the urban-rural income gap. Furthermore, an intermediary effect test method is used to investigate the potential mediating effect of urbanization in this relationship. The results indicate that transportation infrastructure has a significantly negative direct, indirect, and total effect on the urban-rural income gap, with the indirect effect being greater than the direct effect. This suggests that transportation infrastructure can effectively reduce income disparities, with a noticeable spatial spillover effect. The level of urbanization plays a significant intermediary effect on the effect of transportation infrastructure on the urban-rural income gap, highlighting the role of transportation infrastructure in improving urbanization and narrowing income disparities. These findings underscore the importance of enhancing both the level of urbanization and cooperation between neighbouring regions in order to maximize the benefits of transportation infrastructure development for reducing income disparities and promoting regional balance in China.