It is well documented that monetary reward improves performance of cognitive tasks by increasing task concentration and engagement. In the current study, we investigated the effect of reward expectation on the localized attentional interference effect (LAI). LAI occurs when attending to a visual object degrades the processing of nearby objects, with the interference subsiding with increasing distance from the attended item. The reason for LAI is that, as the separation between the attended items decreases, stimuli presented within receptive fields of the same sets of neurons are processed in a mutually suppressive manner, competing for neural representation. We carried out three experiments combining cuing paradigm and visual search paradigm. A cue indicating the reward condition of each trial (incentive vs. non-incentive) was followed by the presentation of a search array containing two target items (in Experiment 1) or a target item and a salient distractor (in Experiments 2a and 2b). In Experiment 1, participants were asked to discriminate whether the two shape singletons among a set of non-target items were of the same shape or not. The results showed that participants’ performance declined as the target separation reduced in both the incentive and the non-incentive conditions. The response accuracy in identifying the two targets was higher in the incentive condition than that in the non-incentive condition when the two targets were distant from each other, but the pattern was reversed when they were close to each other. Namely, the LAI effect was larger in the incentive condition than that in the non-incentive condition. In Experiments 2a and 2b, participants were asked to discriminate the orientation of a target while a salient distractor was presented in the search array. In contrast to Experiment 1, results from Experiment 2b revealed LAI effect in the non-incentive condition, but not in the incentive condition. In addition, shorter reaction times and higher response accuracy were observed in the incentive condition than in the non-incentive condition at any target-distractor separations. These results suggested that reward expectation regulates the LAI effect according to the task set, with improved attentional concentration on task-relevant objects and enhanced inhibition to task-irrelevant ones, although this may intensify local competition when two critical objects are both targets.