["Review of Development Economics, EarlyView. ", "\nABSTRACT\nEffectively narrowing the income gap between urban and rural areas is key to achieving the goal of common prosperity in China. This study empirically investigated the nonlinear effect of industrial transfer on urban–rural income gap (URIG) using a spatial Durbin model with a squared term using hand‐curated industrial data for 138 prefecture‐level cities from 2013 to 2021. Considerable reduction of local and surrounding URIG is only possible once the industrial transfer passes the inflection point. This conclusion still holds following stability and endogeneity tests. Furthermore, this study proposes the perspective of heterogeneous labor mobility and uses the moderating effect model to verify. It also found that industrial transfer under low‐skilled labor mobility has a stronger effect on reducing URIG than high‐skilled labor mobility. The transfer of labor‐intensive industries is only effective before the inflection point is reached, when the per capita income is high. Similarly, the transfer of capital‐intensive sectors is crucial only before the inflection point is surpassed during the early stages of advanced financial development. However, only after surpassing the tipping point can the transfer of technology‐intensive industries markedly reduce URIG in the event of strong human capital. Thus, local governments should absorb low‐ or high‐skilled labor according to local conditions and take on labor‐, capital‐, or technology‐intensive industries as needed.\n"]