This study examines the effects of family involvement on the literacy gap between rural and urban Chinese primary students via mediation analysis. Altogether, 1080 students in Grades 1, 3, and 5 were randomly sampled from three urban and three rural primary schools from Shandong and Guizhou Provinces, representing eastern and western China, respectively. The Primary Chinese Reading Literacy Scale was administered to all participants in group sessions. Parents were surveyed on parental educational levels, home literacy environment, and parental involvement in home literacy activities. The findings show that the urban students significantly surpass their rural counterparts in Chinese literacy attainment, parental education levels, and home literacy environment and activities. The structural equation model indicates that the rural-urban literacy gap is mediated by parental education level and family literacy environment (resources, informal and formal literacy). Theoretical and practical implications of these findings and possible directions for future educational studies are discussed.