ABSTRACT: This study uses city level panel data covering China's 262 cities for the period 2004-2012 and employs the dynamic panel system generalized method of moments (GMM) model with the instrumental variables regression technique to investigate empirically the impact of foreign direct investment on urbanization in China. The study finds that foreign direct investment on average has played a significantly positive role in the development of China's urbanization. However, the impact of foreign direct investment on urbanization varies from region to region. Foreign direct investment has a positive impact on urbanization in the coastal region but has no significant impact on urbanization in the inland region. Apart from foreign direct investment, the study suggests that the economic structure, the level of economic development, the level of fixed assets investment and the size of a city's population are important determinants of urbanization in China.