Resolving the challenge of “being a large country with a small agricultural sector” in line with China’s context and rural conditions hinges on forging a modernization path for agriculture and rural areas. The dynamic growth of the digital economy has presented a novel avenue for tackling this issue. Anchored in panel data at the municipal level spanning 2012 to 2021, this study employs the TOPSIS entropy weighting method to compute and analyze the Chinese Agricultural and Rural Modernization Index (CARMI). Furthermore, it employs a high-dimensional fixed-effects panel model and a multi-period Difference-in-Differences (DID) model to scrutinize the impact and mechanisms of the digital economy on China’s distinctive style of agricultural and rural modernization. The findings reveal that the CARMI exhibited a consistent overall elevation from 2012 to 2021, along with a narrowing disparity among regions. Additionally, the digital economy can effectively propel the progression of China’s agricultural and rural modernization, with a particularly pronounced impact witnessed in the eastern and southern regions, non-grain-producing areas, and regions with higher levels of agricultural and rural modernization. Mechanism analysis discloses that the digital economy can heighten the level of agricultural and rural modernization by stimulating the deepening of rural capital and enhancing market orientation. Significantly, the substantial transfer of the agricultural labor force amplifies the promotional impact of the digital economy on China’s style of agricultural and rural modernization. Thus, this research suggests that, grounded in China’s national circumstances, leveraging the role of the digital economy should be prioritized, and concerted efforts should be directed towards rectifying the issue of imbalanced development. The organized advancement of non-agricultural employment for the agricultural labor force and the augmentation of farmers’ market involvement and rural capital deepening are recommended.