Smoothing the urban-rural economic cycle is an objective requirement for enhancing the endogenous power and reliability of the domestic circulation of China. On the basis of clarifying that there are real obstacles to the unimpeded urban-rural economic cycle in China, such as the ineffective two-way flow of urban-rural factors, the low degree of integration of urban-rural industries, and the insufficient coordination of urban-rural demand and supply, this paper, in combination with the political economy analysis of the development of urban-rural relations, constructs a theoretical analysis framework for smooth the urban-rural economic cycle. Further, relying on the theory of division of labor development, it deeply analyzes the theoretical mechanism for the unimpeded urban-rural economic cycle through division of labor development. Finally, it is proposed that the smooth of the economic circulation between urban and rural areas needs to meet three dimensions: from the perspective of microeconomics, guiding the two-way flow of factors and constructing a unified market for urban and rural factors; from the perspective of meso-economics, giving full play to the comparative advantages of regions and promoting the accelerated integration of urban and rural industries; and from the perspective of macroeconomics, promoting the synergy of “efficient market” and “well-functioning government” to form a benign system of matching supply and demand.