The university-city relations are changing along with the engagement of universities in public service beyond teaching and research and the dependence of cities on networks rather than enclosure to promote urban competitiveness. Taking China as an example, this article discusses the challenges and tensions of university-city interaction in the knowledge society at the global, national, and local scales. At the global scale, there is mutual selection between universities and cities, which results in the polarized concentration of competitive universities in competitive cities. At the national scale, the retreat of the state in public service provision and the diffused entrepreneurship in the market leads to university-city coalitions with overlapping institutional spheres and institutional ambiguity. At the local scale, the campuses of urban universities are often planned in a de-urbanized way to meet the broader urban requirement. To ease such university-city tensions, it calls for the differentiation of development strategies, the institutionalization of entrepreneurial coalitions, and an operational definition of urban university.