Chinese fiction went through marked transformations in the Tang Dynasty (618-907). Although the subject matter was still about spirits and social anecdotes, compared with fiction created in the period of the Wei (220-265), Jin (265-420) and the Northern and Southern Dynasties Period (386-581), the plots became more intricate and complex, the characters more distinctive, the language more ornate, and the structure more expanded. Fiction of the Tang Dynasty was called "prose romances. The emergence of "prose romances" in the Tang Dynasty marked the maturity of the Chinese short story, because they went beyond merely recording anecdotes and became consciously creative literary works by scholars. "Prose romances" of the Tang Dynasty fell into three categories:

First, supernatural stories, which drew their subject matter from literary sketches. Famous works include The Story of the Pillow by Shen Jiji, and The Governor of the Southern Tributary State by LiGongzuo. The two stories ridiculed feudal scholars obsessed with fame and riches.

Second, love stories, which were the most valuable of the "prose romances" of the Tang Dynasty. Famous works include The Story of A Singsong Girl, The Story of Yingying, Prince Huo's Daughter, Ren, the Fox Fairy, and The Story of Liu Yi. These stories praised faithful love and criticized the oppression of women by feudal ethics and customs. As well, they successfully portrayed a series of women characters that fought bravely for happy marriage.

The Story of A Singsong Girl describes the love between the prostitute Li Wa and Gongzi Zhi, a nobleman from Xingyang. By giving the story of the two lovers a happy ending, the novel condemned the idea of "two families must match in social status" and expressed appreciation for true love between men and women. The plot of the novel was complex and the characters well rounded in their portrayal.

The Story of Liu Yi tells of a romance between Liu Yi, a failed scholar, and Dragon Girl of Dongting Lake. Liu Yi helps Dragon Girl extricate herself from an unhappy marriage, and after a series of complications, the two end up getting married. Wonderful characterizations are the most successful part of this novel. Liu Yi's honesty, Dragon Girl's deep feelings and the explosive character of Qian Tangjun are vividly depicted. The novel's adept way of contrasting reality with illusion exerted great influence on literature in later periods.

Third, heroic fiction describes the courageous deeds of swordsmen in punishing villains. The representative works include The Red Thread Maid and The Story of Xie Xiao'e.

"Prose romances" of the Tang Dynasty surpassed the fiction created by predecessors not only in its subject matter and ideas but also in artistic achievement. Many "prose romances" described a period or the whole life experience of a character in order to reveal his or her personality and development of thought. The "prose romance" of the Tang Dynasty was the beginning of the Chinese-style novel. Though relatively short in length, it began to take on the profile of a full-length novel.