<p>Cities provide space for firms’ production activities; however, heterogeneous city shapes restrict a city’s layout and change enterprise productivity. A compact city shape means shorter within-city trips and greater accessibility for a given area and is defined by the distances within a city’s layout, where shorter distances between all pairs of interior points within a city. In this study, we quantitatively measure compact city shapes via nighttime lighting data in China to explain how city shape affects the productivity distribution within a city. The results show that a compact city shape promotes firm productivity. The direct channels of this productivity-enhancing effect are agglomeration effects, and the indirect channels are skilled labor inflow and firm entry. In addition, we find that innovation is not the channel through which compact city shapes promote productivity. Furthermore, the heterogeneity analysis reveals that small and medium-sized enterprises benefit more from compact city shapes. However, the productivity-enhancing effects for enterprises in different zones within a city are the same, so there is no heterogeneous effect among enterprises’ locations. These findings imply that maintaining a compact city shape when planning a city is beneficial for growth.</p>