Abstract: Modernization of rural governance is an essential requirement for achieving comprehensive rural revitalization and agricultural modernization, and it also serves as a foundation for integrated urban-rural development. This study measures the level of rural governance modernization across provinces using the entropy weight method and combines it with balanced panel data from four waves of the China Family Panel Studies (CFPS) from 2016 to 2022. Probit models and mediation effect models are employed to examine the impact of rural governance modernization on rural land transfer and its underlying mechanisms. The results show that rural governance modernization significantly promotes land transfer-out and inhibits land transfer-in, which helps break the “small-scale farming replication” pattern and facilitates moderate-scale agricultural management. These effects operate primarily through enhancing non-agricultural employment and increasing household income, which indirectly strengthen land transfer-out and suppress land transfer-in. Heterogeneity analysis indicates that the promoting effect on land transfer-out is more pronounced in the western region, among male-headed households, and in middle-aged families, whereas the inhibiting effect on land transfer-in is more significant in the western region, among male-headed households, and in elderly families. The study suggests implementing differentiated governance strategies aligned with regional land transfer stages, promoting digital governance to empower the entire land transfer process, and strengthening the coordinated integration of rural governance systems with related reforms to sustainably stimulate the land transfer market.