<p>The digital economy stimulates consumption-driven economic growth by enhancing supply innovation, market efficiency, and consumer experiences. Within this process, the middle-income households serve as the primary engine. Nevertheless, research on how the digital economy reshapes the consumption structure of this group remains limited, and its environmental implications have yet to be clearly identified. Although existing literature has extensively examined the impact of the digital economy on consumption, prevailing measurements rely exclusively on macroeconomic indicators. Such metrics fail to adequately capture household-level effects and mechanisms, while also neglecting heterogeneity in digital participation behaviors across demographic cohorts. Based on panel data from the China Household Finance Survey (CHFS) database, this study innovatively constructs a Digital Participation Index tailored to the distinctive digital participation characteristics of middle-income households to examine its effects and mechanisms on sustainable consumption upgrading. The findings show that digital participation significantly promotes sustainable consumption upgrading, with sustainable industrial restructuring and financial literacy acting as mediators. Additionally, the effect varies by region and gender, being more pronounced in China’s western and central regions and in women-headed households. This study aims to provide micro-level evidence for unlocking the sustainable consumption potential of middle-income households and for optimizing green consumption policy design in the digital era. </p>