Transport is a major contributor to carbon emissions and air pollution in China. Ongoing urbanization provides a unique opportunity for Chinese cities to abate emissions by reducing transport demand via compact urban development (CUD). Here we systematically evaluate the implications of CUD for climate, energy use, air quality and human health in 2050 China under various scenarios of alternative energy vehicle (AEV) deployment and power decarbonization. We find that, with low AEV penetration and carbon intensive power (57% coal + gas), ambitious CUD policy reduces on-road transport CO₂ and NO_x emissions by 97 Mt (8%) and 95 kt (7%), respectively, and avoids 25,000 premature deaths from ambient air pollution in 2050. CUD delivers less climate and air quality co-benefits as AEV penetration increases and their energy sources decarbonize, but continues to reduce vehicle energy use (up to 10%). With 100% AEV penetration, ambitious CUD policy still avoids 5,800 premature deaths by reducing non-exhaust vehicle emissions and upstream emissions. Our analysis demonstrates that CUD policy would provide considerable environmental and economic benefits in China.