The concept “separation of old and new districts” refers to an urban development mode in which a new urban district is established in addition to old ones, and two centers keep pace with each other. The concept was once regarded as an urban development policy to protect cultural heritage. After entering the 20th century, with the development of urbanization, the gap between old and new urban districts was widened, and the development of old urban districts stagnated, gradually decayed, and reduced to a marginal urban area. Thus, the protection situation was very serious. The mainstream view is that the “separation of old and new districts” is the root cause of the current situation, and the way to solve it is to cultivate a new urban function, namely tourism. However, field investigation and research on the old districts of Hancheng show that this idea is not the primary reason. The crux of hindering the protection and development of old districts lies in the degradation of its inherent residential functions, and the confusion of the management system exacerbates this problem. At the same time, any attempt to improve the status quo is faced with a dilemma where no relevant law can be found. Tourism can help to ease the problem, but cannot solve the problem. When it comes to the guiding principle of addressing this issue, a balanced development of new and old districts should be prioritized. Some step-by-step measures are essential, such as curbing damage, repairing texture, and organic renewal, and focusing on the protection and renewal of architectural style. This is a way to ensure that “people-oriented urbanization” is realized.