Financial distress is detrimental to both companies and the development of economic society. The emergence of digital transformation provides a potentially prominent pathway for companies to address financial distress. Drawing on the dynamic capability view, this study explored the effects of digital transformation on firms’ financial distress and how this relationship may be contingent on the life cycle. Our hypotheses were empirically examined using a large panel dataset of Chinese-listed manufacturing firms and applied a hierarchical linear model with multiple high-dimensional fixed effects. The results indicate that digital transformation significantly alleviates financial distress. Moreover, the life cycle has a moderating effect on this relationship. Specifically, the mitigating effect of digital transformation on financial distress is stronger during the growth stage but weaker during the declining stage. Finally, the findings provide important theoretical contributions to the literature on digital transformation and corporate finance and offer managers valuable practical implications to mitigate financial distress.