China's extensive urbanization has resulted in a massive loss of natural habitat, which is threatening the nation's biodiversity and socioeconomic sustainability. A timely and accurate understanding of natural habitat loss caused by urban expansion will allow more informed and effective measures to be taken for the conservation of biodiversity. However, the impact of urban expansion on natural habitats is not well-understood, primarily due to the lack of accurate spatial information regarding urban expansion across China. In this study, we proposed an approach that can be used to accurately summarize the dynamics of urban expansion in China over two recent decades (1992–2012), by integrating data on nighttime light levels, a vegetation index, and land surface temperature. The natural habitat loss during the time period was evaluated at the national, ecoregional, and local scales. The results revealed that China had experienced extremely rapid urban growth from 1992 to 2012 with an average annual growth rate of 8.74%, in contrast with the global average of 3.20%. The massive urban expansion has resulted in significant natural habitat loss in some areas in China. Special attention needs to be paid to the Pearl River Delta, where 25.79% or 1518 km2 of the natural habitat and 41.99% or 760 km2 of the local wetlands were lost during 1992–2012. This raises serious concerns about species viability and biodiversity. Effective policies and regulations must be implemented and enforced to sustain regional and national development in the context of rapid urbanization.