The income distribution effect of foreign direct investment is an existing divergence in the academic circle. This paper selects the Chinese provincial panel data during 1995—2010 using the fixed effect variable intercept model to empirically test the validity of the existing opinions in China from the perspective of Chinese provincial income distribution effect. The results show that foreign direct investment expands the income gap in china. The reasons for the phenomenon are that foreign invested enterprises choose the business strategies of both “two outside” and technology blockade, and that the domestic enterprises with low technical level are difficult to integrate into the industrial chain of foreign invested enterprises, and that the reform of income distribution system encounters resistance, and that the salary systems are different between the domestic enterprises and the foreign invested enterprises. Therefore, this paper presents that China should improve the embeddedness of the foreign invested enterprises in China, encourage invested enterprises to transfer the key technology, properly limit the excessively high income, perfect the social security system, implement the financial transfer and payment system, develop the education training career and communication and cooperation both home and abroad, and perfect the intellectual property rights system.