Affected by various macro and micro unfavorable factors, the issue of youth unemployment in China has become prominent, attracting widespread attention from all sectors of society. Promoting high-quality and full employment for young people has become a government priority policy for people’s livelihoods. This paper uses data from the Chinese Family Panel Studies (CFPS) from 2014 to 2020 as a sample to explore the effect and its mechanism of digital literacy on the high-quality and full employment of young people. The results show that: First, the improvement of digital literacy among young people will significantly promote their high-quality and full employment, increase their willingness and probability of employment, lower the threshold of work knowledge, expand the scope of employment, improve the flexibility of work methods, increase work salaries, and ultimately enhance job satisfaction. Second, social networks, intergenerational dependence, cognitive abilities, and entrepreneurial preferences all play a significant moderating role in the impact of digital literacy on youth employment. The more developed the social network, the stronger the cognitive ability, and the greater the entrepreneurial preference, the more positive the impact of digital literacy improvement on youth employment. In addition, digital literacy can also alleviate intergenerational dependence between parents and children, promoting youth employment. Third, there is heterogeneity in the impact of digital literacy on youth employment. The impact of digital literacy on youth employment increases with age and education, and this effect is more pronounced among female youth, urban youth, and youth in the eastern region. The conclusions have important implications for preventing and resolving the risk of large-scale youth unemployment, improving the efficiency of youth employment allocation, and promoting youth to achieve higher-quality and full employment. It also has reference value for promoting the high-quality development of China’s digital economy and the construction of a great nation with digital talents.