This study utilizes data from the China Family Panel Studies (CFPS), spanning five rounds of surveys from 2010 to 2018, as a sample. Using the deprivation index to measure income inequality among farmhouseholds, a quasi-natural experiment is established through a “progressive” differencein- differences (DID) model to empirically examine the impact of livelihood infrastructure on income inequality among farmhouseholds, specifically focusing on the transformation of drinking water. The findings reveal that the transformation of drinking water, as a component of livelihood infrastructure, significantly reduces income inequality among farmhouseholds. The robustness of the research conclusions is validated through a series of tests, including the parallel trends test, the placebo test, and the PSM-DID. Mechanism tests indicate that the transformation of drinking water primarily reduces income inequality among farmhouseholds by enhancing their household health capital and psychological capital. Furthermore, further analysis demonstrates an inverted U-shaped non-linear relationship between the impact of drinking water transformation on income inequality and the per capita net income of households. The impact of drinking water transformation on income inequality is more pronounced among households with land ownership and households where the head engages in farming activities.