Digitalization has a profound impact on the daily lives of individuals and plays a pivotal role in promoting sustainable development. Digital economy has emerged as a prominent driver of sustainable development worldwide. It plays a crucial role in environmental sustainability, economic expansion, and social progress. This study primarily examines the role of the digital economy in facilitating sustainable regional development (SRD). Furthermore, this study examines the moderating effect of digital financial inclusion on the relationship between digitalization and SRD. Panel data from 30 Chinese provinces spanning the period 2011 to 2021 were utilized for this analysis. Digital economy (Digi-E) and SRD were measured using the panel entropy method and principal component analysis. SRD considers three main dimensions of sustainable development: the economic, environmental, and social sustainability of the provinces. The spatial Durbin dynamic model and spatial regression were used to analyze the data. The findings revealed that Digi-E significantly affected SRD, with a marginal effect of 0.297. Similarly, digital financial inclusion significantly and positively moderates the relationship between Digi-E and SRD. The spatial Durbin dynamic model also showed that Digi-E has a significant effect on SRD when both types of weights are considered, such as economic geography and geographic distance. Moreover, it was confirmed that the SRD in the previous year significantly contributed to the SRD in subsequent years, and that the SRD in the local region also significantly contributed to the SRD of the adjacent region. Spatial regression also revealed a significantly positive impact of the interaction terms Digi-E and digital financial inclusion on SRD. Thus, Digi-E can contribute significantly to sustainable regional development both individually and through digital financial inclusion. The new economic growth and development plan requires governments to drive the digital revolution and improve the infrastructure. Governments should increase digital financial services with a focus on rural monitoring.