Abstract: Mutual promotion of urbanization and agricultural modernization is an important issue in China’s economic development and forestry modernization depends on the upgrading of forestry industrial structure. Based on the data of China forestry statistical yearbook from 1998 to 2014, this paper evaluated the forestry industrial structure by the industrial structure coefficient and measured the optimization of the industrial structure using the proportion of the urban population in the total population. In addition, this paper also analyzed the influence of urbanization on forestry industry structure optimization by examining the key influential factors, including the development of the national economy, the area of forest land, the new forest area proportion, education, labor, and capital investment. Results show that 1) the degree of optimization of China’s forestry industrial structure is increasing, and the forestry industry structure value increased from 1.32 in 1998 to 1.79 in 2014, while Chinese urbanization rate was 44.37% from 1998 to 2014, with the maximum value of 54.77% and the level of urbanization has significant positive effect on the optimization of forestry industrial structure; 2) there is a significant positive effect on the optimization of forestry industrial structure in terms of forestry capital input, labor input and forestry system reform; and 3) forest area, forest coverage and GDP have significant negative impacts on the optimization of forestry industrial structure. Based on the results of the research, this paper provides some policy suggestions: to increase the diversification of forestry industry, to develop value-added products, to encourage the development of the third industry, to optimize the investment structure of forestry industry, to improve the welfare level of forestry practitioners, to reform the forestry subsidy system to encourage farmers’ active involvement in forestry management, and to strengthen the construction of forestry system.