Digital reduction is a striking evolutionary phenomenon that is clearly exemplified in theropod dinosaurs by the functionally didactyl manus of tyrannosaurids, the flight-adapted manus of birds (Aves), and the tridactyl but digit II-dominated manus of alvarezsauroids. The enlargement of manual digit II in alvarezsauroids and the concurrent reduction of the lateral digits have been interpreted as adaptations for digging, although no detailed biomechanical analysis of hand function has so far been carried out for this group. In the derived alvarezsauroid clade Parvicursorinae, the lateral digits are so small as to be presumably vestigial. Here we report a new alvarezsauroid, Linhenykus monodactylus gen. et sp. nov., based on a specimen from the Upper Cretaceous Wulansuhai Formation of Inner Mongolia, China. Cladistic analysis identifies Linhenykus as the most basal parvicursorine, and digit II of the manus retains a slender morphology and other primitive features. However, Linhenykus is also highly apomorphic in exhibiting the most extreme reduction of the lateral manual digits seen in any alvarezsauroid. Phalanges are retained only on the most medial digit (digit II), making Linhenykus the only known functionally monodactyl nonavian dinosaur. Other parvicursorines are more primitive in retaining a tridactyl manus but more derived in that digit II is highly robust and shows other apomorphic features in both of its phalanges. The unexpected combination of features seen in the hand of Linhenykus points to a complex mosaic pattern of manual evolution in alvarezsauroids, with loss of the presumably vestigial outer digits being decoupled from change in the form of digit II.