Rapid urbanization, especially in many developing countries, is accompanied by the decline of rural populations and rural culture. Tangwan village in Shanghai in China is a typical case. Based on the theory of production of space, this article presents spatial production of rural culture from three dimensions: ideological space, superficial space and everyday life space, and analyzes the reasons for the gradual decline of rural culture. The development of rural culture in China is seriously affected by the national and local policies. The formal power of a place which is mainly represented by the administrative level, dominates many cultural changes. With the decline of Tangwan's position to a village in an urbanized Shanghai, its local rural culture is declining. Under the pattern of production of space dominated by power and capital the village is challenged to maintain its rural culture and to develop a new culture. The traditional rural culture cannot be protected, however, the new rural culture has not matured. The lack of everyday life space for village residents to express and develop culture is partly to blame. The culture is the root of the rural development. The lost culture leads to the lost village. Adequate everyday life space is important for rural culture to flourish and though those spaces need careful planning to accommodate and grow local cultural needs.