Cultivated land has been one of the most important resources for national food security. While cultivated land fragmentation has restricted modern agriculture in the hilly and mountainous regions of Southwest China. According to the man-land relationship territorial system theory and multidimensional perspective of nature-economy-society, this study attempted to construct a theoretical framework of status evaluation-effect testing-mechanism analysis. Hechuan District of Chongqing Municipality was selected as the research area. Three-period survey data was collected from 326 villages from 2014 to 2024. An evaluation index system was also conducted for cultivated land fragmentation. Panel multidimensional fixed- and mediation-effect models were employed to measure the degree of cultivated land fragmentation. A systematic analysis was conducted to examine the impact mechanism and heterogeneity of cultivated land fragmentation on villages’ income. The results indicate that: 1) The high degree of cultivated land fragmentation was observed from 2014 to 2024, with the fragmentation index pattern of initial increases followed by decreases. Notable regional differences narrowed gradually, with the ratio of the maximum to minimum 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 primary centers, the central region as the secondary center, and the northern region higher than the southern region. 2) Cultivated land fragmentation significantly inhibited 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. A series of verifications included the dependent variables, the independent variables, the sample scope, and the control variables. 3) Cultivated land fragmentation suppressed villagers' income growth, such as high agricultural production costs, the promotion and application of agricultural machinery, and low land transfer. 4) There was the heterogeneity impact of cultivated land fragmentation on villagers' income growth over household attributes, village attributes, and village topography, particularly for households lifted out of poverty, poverty-stricken villages, and hilly areas. 5) Finally, the measures were proposed for cultivated land fragmentation, including industrial support for households lifted out of poverty, differentiated land consolidation, and industrial models under local conditions. The findings can provide theoretical support to manage farmland fragmentation for the common prosperity in the hilly and mountainous areas of Southwest China in modern agriculture.