With the further development of China's economy, the relevance between income gap and the stage of economic development becomes more and more obvious. Using the panel data of 29 provinces in China during 1986-2010, this paper measures the income gap between urban and rural areas with the ratio of urban—rural income and Theil Index respectively. Furthermore, the thesis discusses the relevance between the stage of economic development and the urban-rural income gap. The result shows that China's urban-rural income gap is expanding along with the economic development during these 25 years at the national level. Meanwhile, it is found that there is a marked regional differences in China. The income gap has obviously increased in western China that is in good agreement with it at the nation level. On the contrary, there is a reduced effect of different degree of the income gap in the eastern and central regions. This shows that there is an imbalance of economic development in China once again. There are different stages of economic development within the different region even in one China.