Under the tide of marketization, the economic attributes of traditional social relationships have been increasingly enhanced, and the derived social capital has become an important factor affecting income inequality. Based on the panel data from the China Household Finance Survey (CHFS) database during the period from 2013 to 2019, the impact effect of social capital on income inequality and its potential mechanism of action are thoroughly investigated. The empirical results show that social capital plays a positive role in alleviating income inequality, with a 1% increase in social capital leading to a 0.0053 decrease in income inequality. Even after considering endogeneity issues, this conclusion remains robust. Moreover, the reliability of the research results is further confirmed by robustness tests carried out through excluding outliers and replacing the inequality indicator. In terms of mechanisms, social capital can reduce income inequality through three channels including improving labor mobility, reducing risk aversion, and enhancing financing capabilities. Heterogeneity analysis indicates that the economic effect of social capital in reducing income inequality is more pronounced among middle-aged and elderly groups as well as low-income groups.