Abstract: Abstract：With the deepening of the national strategy of new urbanization and rural revitalization, the trend of diversification in the development of villages and towns in developed regions has further strengthened. The determination of the leading functions of village and town development in a county is the basis for developing industries and protecting the ecological environment in accordance with local conditions in village and town areas. This paper analyzes the characteristics and formation process of functional differentiation in the development of villages and towns in developed regions, focusing on the spatial distribution characteristics and formation mechanisms of different dominant functional types of villages and towns in Liyang City. The research shows that: (1) The spatial differentiation of villages and towns with different leading functions in Liyang City is significant. Most of the agricultural product supply oriented villages and towns are concentrated in the western suburbs, and the industrial integration oriented villages and towns have relatively superior geographical conditions, while most of the rural tourism and ecological conservation oriented villages and towns are located in ecological protection areas. (2) The development characteristics of typical villages and towns with different functions differ significantly, including large-scale production of agricultural products, integrated development of three industries, environmentally friendly tourism industry, and improvement of comprehensive economic and ecological benefits. (3) There are significant differences in the formation mechanisms of villages and towns with different dominant functions, which can be classified into three types of formation mechanisms: the urban-rural resource replacement model, the urban-rural integration development model, and the characteristic resource element combination model.