This research aims to investigate the domestic tourism demand of urban and rural residents in China. Multilevel models are applied to develop domestic tourism demand as a function of income, price of tourism, and substitute price. In the multilevel model, the relative income effect is explored by the interaction term between individual income and average income over city/province. Based on the estimation results, the paper substantiates the need to incorporate relative income to tourism demand study. Furthermore, regional differences between residents in different sub-regions and different patterns of determinants between urban and rural residents are identified and discussed.