The paper has divided 38 counties of Chongqing into four regions, including core urban area, 1 hour economic circle, northeast of Chongqing, and southeast of Chongqing. Using the panel data of vector autoregressive model, the paper analyzes the relationship between urbanization and urban-rural income gap on the city’s urbanization level and the regional plate from 2000 to 2012. The results show that: Theil index of urban-rural income curve shows the characteristics of significant inverted U-shaped at the vast majority of districts in Chongqing. But in the vertex of the inverted U-shaped curve, the absolute quantity and emerging time have distinct regional differences. The urban-rural income’s Theil index of impulse response process has a significant difference in the city and regional plates. Only the urban-rural income gap of core area has reverse pulse response to the urbanization rate. In other words, the improvement of urbanization rate will narrow the income gap between urban and rural areas. According to the empirical results, this paper proposes that at the same time of advancing the new urbanization, gradually narrowing the income gap between urban and rural areas, we should accelerate to break down the institutional constraints which lead to income distribution inequality of urban and rural.