The existing large number of shantytowns in Shanghai suffer from high density, weak lighting, poor ventilation, and other issues. These shantytowns hinder the urbanization process, as the living conditions within them fail to meet residents’ needs. When facing urban renewal, the key focus of this research is how to optimize environmental performance and create pleasant public spaces while preserving the existing urban elements as much as possible. Building a new design logic to achieve these goals becomes the focal point of this study.