How to integrate millions of migrant workers into local communities remains a core challenge in China’s urban transformation. Recently some cities, driven by a national policy of integrated metropolitan development, have aggressively engaged in the redevelopment of urbanizing villages (chengzhongcun) to promote formalization and desegregation. This article adopts a historical micro‐perspective to examine the actual role of urbanizing villages in city making, through an in‐depth analysis of how migrants and villagers have struggled since the 1980s for symbiotic co‐existence during various stages of urbanization. It argues that state‐led village redevelopment has created more problems than it has solved. Redevelopment eliminates some of the spatial and institutional separations characterizing Chinese socialist villages by dismantling barriers hindering formalization and marketization of collective village land, but this produces new social inequalities and tensions as it uproots pre‐existing self‐governing communities to facilitate spontaneous grassroots rural‐to‐urban transition for villagers and migrants. To cope with these problems, intervention to resolve the emerging problems of Chinese cities must consider a fundamental policy shift, away from sole reliance on the means of formalization and integration, to greater emphasis on the benefits of informality and segregation.