The primary objective of this study is to examine the role of financial development in the relationship between inflation and income inequality, using data for developing countries over the period 1995–2020. To this end, the IMF’s multidimensional financial development index is employed, and the Gini coefficient is used as the measure of income inequality. Moreover, trade openness, financial development, GDP per capita and square of GDP per capita are included in the model as control variables. The results obtained from the estimation of the panel data method (fixed-effect model) show that the relationship between inflation and income inequality is positive; in other words, an increase in inflation leads to higher income inequality. Moreover, the results show that improvements in financial development weaken the positive effect of inflation on income inequality. In addition, the results reveal that the impact of financial development on income inequality depends on the level of inflation and the effect of economic growth and trade openness on income inequality is positive. These findings have important policy implications in order to improve financial development to reduce income inequality in developing countries.