Transformed from the Western countries, the so called ‘area-based urban governance’ is an innovative planning strategy in China. In general, it means the establishment of an urban planning and governance system by introducing differentiated spatial policies and institutions for different city areas. This paper focuses on a case study on the implementation of this strategy in inner-city areas, for which public participation was involved in order to achieve the area-based, differentiated urban governance. For Luochuan County, Shaanxi Province, the planners proposed to divide the existing built-up areas into several specified zones for differentiated governance policies. Aiming to improve its feasibility and sustainability, the proposal was discussed, revised and optimized through a 3-phase public participation. A model of area-based and participatory urban governance was thus developed in order to balance efficiency and equity in policy making. This model can be regarded as a pilot project to explore a new approach to urban governance and planning implementation in comparable cities.