In the past few decades, a considerable number of old houses have been demolished in China’s urban redevelopment projects, which led to the disappearance of some historic buildings and the relocation of the original residents. Recently, the strategy of housing demolition (HD) in Chinese cities has been replaced by housing conservation and renovation (HCR). However, the transition from HD to HCR is not carried out well. This study aims to explore the key challenges in HCR practice by using a mixed method. Based on the field investigations in pilot projects and semistructured interviews, current HCR practices in Shanghai are summarized, and the four key challenges are identified as: (1) funding shortages; (2) an underdeveloped regulatory environment; (3) a psychological gap between the government and residents; and (4) a lack of stakeholders’ involvement. Targeted measures are proposed to mitigate the challenges. The findings and suggestions here could provide valuable references for the government when making decisions on sustainable housing conservation and renovation, and may promote urban renewal practices in China and other developing countries.