Land market reform is an important institutional variable which affects the urban-rural income gap. Using the data of 232 prefecture-level cities from 2001 to 2013, this paper empirically analyzes the impact of land marketization on the urban-rural income gap in China. It is found that land marketization significantly expands the urban-rural income gap at the national level, but there are regional differences in this impact. Land marketization in eastern China has narrowed the urban-rural income gap, while land marketization in central and western China has widened the urban-rural income gap. Therefore, from the perspective of the whole country, the land expropriation compensation mechanism shall shift from static monetary compensation to dynamic compensation, and reflect regional differences. In particular, the integration level of urban and rural land market in central and western regions should be improved. We shall also break away from the dual structure of unequal rights and interests in agricultural land and urban land, open up the urban and rural real estate market, establish a unified urban and rural land system and housing market, and promote equal rights and prices for same land. We shall properly handle with the relationship between the government and the market, reduce the government's improper interference in the allocation of land resources, balance the supply of land between regions, and encourage urban and rural residents in eastern, central and western regions to share the fruits of reform and development.