This paper investigates the impact of digital economy development on regional income gaps within provinces in China, focusing on the underlying mechanisms and multidimensional threshold effects. Using provincial panel data from 2011 to 2021, this study finds that the relationship between digital economy development and income gaps follows a U-shape, initially reducing the gap and later widening it. This analysis identifies internet penetration and digital transaction growth as key contributors to multidimensional inequality in digital economy development. Moreover, moderate levels of multidimensional inequality in digital economy development enhance its positive effect on narrowing regional income gaps, while excessive multidimensional inequality may diminish or even reverse this effect. These findings highlight the importance of managing multidimensional inequality to maximize digital economies’ potential for fostering more balanced regional development.