This study explores the efficiency of China's urban development under carbon emission constraint from 1996 to 2017. Firstly, it uses the Defense Meteorological Satellite Program's Operational Linescan System (DMSP-OLS) and Suomi National Polar-Orbiting Partnership Visible Infrared Imaging Radiometer Suite (NPP-VIIRS) nightlight imaging to evaluate the carbon dioxide emission levels of 249 cities in China. Then, it utilises the epsilon-based measure (EBM) superefficiency model and Global Malmquist–Luenberger (GML) index to evaluate the urbanization efficiency and changes in the total factor productivity (TFP) of urban development of the 249 cities under carbon emission constraints. Results show that from 1996 to 2017, the total carbon emissions of the 249 cities grew during a rapid development stage, while the efficiency of urban development under carbon emission constraints showed fluctuation and did not increase significantly. The redundant improvement values of government fiscal expenditure, urban employees, urban fixed asset investment, foreign direct investment, and carbon emission increased in fluctuations. From the regional spatial perspective, the urbanization efficiency of western China was the highest, followed by the northeast region, the central region, and finally the eastern region. In addition, the driving factors of TFP of urbanization in China have improved as a whole. The application of nightlight imaging data and EBM superefficiency model improves the accuracy of urban development efficiency measurement. The findings of this study can provide a scientific basis for different regions and cities of different sizes to formulate carbon emission reduction strategies, and have important policy value for improving urban development efficiency in China. In addition, the research of index system should be deepened to further improve the measurement accuracy.