Abstract: The classified development of small towns is one of the key contents in the process of new urbanization. How to optimize the functions of small towns and guide the differentiated development of small towns is the main problem facing by the development of small towns in our country. Taking Beijing as the empirical research object, this paper constructs a functional classification framework for small towns in Beijing from the two aspects of ‘basic functions’ and ‘characteristic functions’ according to the development characteristics and needs of small towns in megacities. Firstly, this paper evaluates the basic functions of small towns in Beijing, and divides the small towns into two types:towns with perfect basic functions and towns with improved basic functions. Secondly, it evaluates the characteristic functions of small towns with perfect basic functions, which are divided into five categories:cultural function-dominated towns, ecological function-dominated towns, service-function-dominated towns, scientific and technological function-dominated towns, and international function-dominated towns, and analyzes the typical small towns of various types. Finally, based on the functional classification of small towns, it proposes strategies for differentiated and classified development, strengthening infrastructure construction, developing with its own advantages, and driving development with the help of projects. In order to promote the differentiated development of cities and towns, effectively undertake the function of the central urban area of Beijing, and provide references for the functional classification and healthy development of small towns in other areas.