Abstract: To study the dynamic effect of industrial structure evolution on the urbanization process of Xinjiang, based on the output data of the primary, the secondary and the tertiary industry from 1985 to 2013, a state space variable parameter econometric model was built using Kalman filter algorithm. The results showed that the primary industry had a negative effect on the urbanization process of Xinjiang; the secondary industry was the main power promoting the urbanization of Xinjiang and was in the important period of rapid development; the effect of the tertiary industry was changing from a stable positive effect to a negative effect which was decreasing. The secondary and tertiary industry had opposite effect on the urbanization of Xinjiang. It was concluded that the urbanization of Xinjiang relied too much on the second industry, so reasonable industrial structure and policy guidance should be adjusted and arranged and the development of the tertiary industry should be improved. The results are of certain significance to promote the sustainable development of urbanization process of Xinjiang.