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Objective: To examine the association between urbanization and psychological well-being (PWB) in China. Methods: Data were obtained from the 2015 China Health and Nutrition Survey (CHNS) and included 3,071 men and 3,385 women aged 50 years or older who lived in 288 communities across 12 provinces and municipalities. The urbanization index, which summarizes 12 urbanization dimensions at community level, was categorized into tertiles representing low, medium, and high levels of urbanization. PWB was assessed by scoring three self-reported questions. Gender-stratified multilevel analyses were used to estimate the association between urbanization and PWB. Results: After controlling for individual-level factors, the urbanization index was associated positively with PWB. More specifically, an increase of one SD in the score of community population density, economic activity, housing, education, sanitation, or diversity was associated significantly with PWB in both genders. In addition, increases in the score of community communications, social services, transportation, or modern markets were associated significantly with PWB in women, but not in men. Conclusion: Urbanization has, on average, had an independent and positive effect on PWB in middle-aged and older Chinese populations, with many components of urbanization being separately and positively associated with PWB, especially in women.