Using a representative household survey for 1995, 2002, 2007, and 2013, we show that education plays a pivotal role in shaping wage inequality in urban China. We find that education was a major contributor to increased wage inequality between 1995 and 2013. The returns to education remained high after 2007 despite a large inflow of college-educated workers. Although regional wage inequality declined from 2007–13, regional wage inequality among educated workers did not. Residual wage inequality increased, and the within inequality of educated workers increased faster than that of the less educated. We argue that China's education expansion seems insufficient to narrow the educational wage gap, and a lack of labor mobility for educated workers prevents the decline in returns to education in specific regions.