Against the backdrop of rising inequality across regions, place-based policies have become a popular tool to support "left-behind" areas. While existing research has studied their aggregate growth effects, we lack evidence on how income gains from such policies are distributed within regions. As income differences within supported regions are often large, understanding their distributional effects, however, matters for both efficacy and equity reasons. Based on household data from more than 2.4 million survey respondents in the 1989-2017 period, we compile the first panel data set on income inequality within subnational regions in Europe. These data show that inequality within regions is substantial, tends to increase over time and contributes more to inequality in Europe than inequality across regions. We then study the distributional effects on household incomes of one of the world’s largest placed-based policies, the EU Cohesion Policy. For causal identification we use, first, a discontinuity in disbursed amounts that results from eligibility criteria and, second, a difference-in-differences design. The results show an economically substantial, positive effect of place-based funds on household incomes that is largest at the top of intra-regional income distributions and insignificant for the bottom 40 percent. The place-based policy increases inequality within regions. To study the mechanisms, we differentiate by production factors, sectors, and education levels with both macro and micro data and find that the effects are driven by higher labor incomes for more highly educated individuals in multiple sectors.