This paper explores the direct costs of air pollution within China’s domestic tourism sector. We construct a unique data set spanning the years 2006–2016, comprising monthly data on domestic tourism revenue and the monthly count of domestic tourists at the city level. Our findings indicate that a one standard deviation increase in air pollution is associated with a substantial 9.1% decrease in domestic tourism revenue and a 3.8% reduction in the number of domestic tourists. It is also noteworthy that these effects demonstrate a significant nonlinear pattern. To gain further insights, we explore potential mechanisms by incorporating public perceptions of air pollution measured by the Baidu Index and observe that the adverse effects intensify as public concern about air pollution rises. A battery of heterogeneous analyses also lend support to the robustness of our main results. Importantly, our findings remain robust when employing alternative air pollution measures, considering numerous aspects of the tourism industry, and addressing endogeneity concerns.