Abstract: Cultivated land resources form the foundation for ensuring food security, while cultivated land fragmentation stands as a critical bottleneck restricting agricultural modernization and income growth for villagers in the hilly and mountainous regions of Southwest China. Accordingly, based on the man-land relationship territorial system theory and integrating the multidimensional perspective of “nature-economy-society,” this paper attempts to construct a theoretical research framework of “status evaluation-effect testing-mechanism analysis.” On this basis, it selects Hechuan District of Chongqing Municipality as the research area, and uses three-period survey data from 326 administrative villages spanning 2014 to 2024. Incorporating the specific characteristics of the hilly and mountainous areas of Southwest China, it builds an evaluation index system for cultivated land fragmentation. By employing panel multidimensional fixed-effects models and mediation effect models, this paper measures the degree of cultivated land fragmentation in the hilly and mountainous areas of Southwest China, empirically examines the impact mechanism and heterogeneity of cultivated land fragmentation on villages’ income increase, and thoroughly analyzes the underlying mechanisms, so as to provide theoretical support for promoting agricultural modernization and solidly advancing common prosperity in the hilly areas of Southwest China. The results indicate that: 1) From 2014 to 2024, the degree of cultivated land fragmentation in the hilly and mountainous areas of Southwest China was relatively high, with the fragmentation index showing a pattern of initial increase followed by a decrease. Notable regional differences existed, and these differences gradually narrowed, with the ratio of the maximum value to the minimum value decreasing from 1.99 to 1.83. Meanwhile, the spatial distribution was characterized by "two primary zones, one secondary zone, and higher levels in the north than in the south," namely the northwest and northeast regions as the main centers, the central region as the sub-center, and the northern region significantly higher than the southern region. 2) Cultivated land fragmentation in the study area had a significant inhibitory effect on villagers' income growth. Specifically, a one-percentage-point increase in the degree of cultivated land fragmentation led to a six-percentage-point decrease in villagers' agricultural operating income. This conclusion remained robust after a series of robustness checks including the replacement of the dependent variable, the replacement of the independent variable, the adjustment of the sample scope, and the addition of control variables. 3) Cultivated land fragmentation in the hilly and mountainous areas of Southwest China suppresses villagers' income growth through mechanisms such as increasing agricultural production costs, limiting the promotion and application of agricultural machinery, and hindering land transfer. 4) The impact of cultivated land fragmentation on villagers' income growth exhibits heterogeneity across different household attributes, village attributes, and village topography. The effect is more pronounced for households lifted out of poverty, poverty-stricken villages, and hilly areas. 5) Finally, this paper proposes differentiated governance measures for cultivated land fragmentation, including continuing and optimizing the industrial support policies for households lifted out of poverty, implementing differentiated comprehensive land consolidation, and developing characteristic industrial models tailored to local conditions. The findings provide a scientific basis for managing farmland fragmentation, accelerating agricultural modernization, and effectively promoting common prosperity in the hilly and mountainous areas of Southwest China.