Abstract: The paper empirically analyzes the dynamic relationship between urbanization and services and also its influential factors in China during 1978-2011.The results show: the level of urbanization is in highly positive correlation with service economy in short run and long run;the urbanization process promotes service economy and vice versa;the per capital income, employment structure, degree of industrialization and marketization degree affect the promotional function of urbanization on service economy in short-term.The policy suggestions are as follows: the coordinated development of the urbanization process and service development;the common development of new-style industrialization and service economy;the solving of the problems of urban-oriented services and the imbalance of service supply and demand;and the relaxing service industries' control and introducing the market competition mechanism.