["Review of Development Economics, EarlyView. ", "\nABSTRACT\nIn the digital era, digital literacy is a crucial form of human capital that can enhance economic participation for low‐income groups and promote equitable growth. This study measures family digital literacy levels and employs the recentered influence function (RIF) to analyze its impact on income inequality. The findings indicate that an enhancement in digital literacy is effective in reducing cross‐family income inequality (CFII). Heterogeneity analysis indicates that the effect of enhanced digital literacy on mitigating CFII is most prominent among families with endowed advantages, specifically those residing in urban areas, located in the eastern or central regions, having higher educational attainment, and being relatively younger. Mechanism analysis demonstrates that the enhancement of digital literacy narrows CFII mainly by promoting economic participation (the employment effect and the wealth effect), which leads to an increase in the wage and property income of low‐income groups. The study provides micro‐level insights into digital literacy's role in income distribution and offers policy implications for improving digital skills and fostering inclusive economic growth.\n"]