In this study, an attempt has been made to decompose income inequality in districts of four provinces of Pakistan with respect to rural and urban segments. For this purpose, Gini coefficient is estimated at district level by using data of Pakistan Social and Living Standard Measurement Survey (PSLM) for the years 2004-05 and 2014-15. The findings reveal that there is significant overtime change in income inequality across districts especially in Swat, Bonair, Gwader and Jhal Magsi. Income inequality in Swat, Bonair,and Gwader has decreased while in Jhal Magsi income inequality has been increased significantly. A regression based decomposition methodology, proposed by Field (2003) has been used to examine the contribution of variables like household size, gender of household head, age of household head, education of household head, marital status of household head, employment status of household head and region. The findings reveal that district level income inequality among all four provinces of Pakistan has not changed significantly except few districts which have been mentioned above. In addition high concentration of income inequality is observed in urban areas as compared to rural areas. While within group, inequality is higher as compared to inequality between the groups in all provinces. It has been also observed that, from 2004-05 to 2014-15 inequality within the groups has been increased whereas between the groups inequality has been decreased. It shows that inequality gap between rural and urban areas has decreased while inequality within the groups of urban and rural areas has increased. The variables which contributed more in inequality are education of household head followed by household size and region. Supervisor:- Dr. Rehana Siddiqui