In the studies of Chinese literature, it is an usual practice to translate the Chinese term xiaoshuo with the English terms "fiction" or "the novel", and few, if any, ever feel the need to ask for an justification of it, as if it is crystal clear that these terms are exact synonyms. While there are indeed few problems in understanding the meaning of xiaoshuo through "fiction" or "the novel" as it appears in modem Chinese literature, it was not the case when the term xiaoshuo was put in pre-modem Chinese context, where it bore very different meanings. It literally meant "small talks" and was regarded as equivalent to "alley hearsay". Besides, its emotional connotation in pre-modem China was also very different from that of "fiction" or "the novel". For traditional scholars-gentry, xiaoshuo always carried a negative and pejorative sense that it was considered to be unworthy to be read seriously of his status. The situation started to change only in the last decade of the 19th Century. Following the repeated military defeats of the last Chinese Empire to the western powers, there was an influx of Western ideas into China. With the collision and interaction between the traditional Chinese ideas and the new Western ones, many traditional Chinese terms, which had been used for over 2000 years without substantial modification, were subject to radical transformations in meaning. Xiaoshuo was one of these terms. The present thesis attempts to offer an analysis of the transformation of the meaning of "xiaoshuo" in the period 1898-1920 by applying the method of analysis suggested by the history of ideas. Three representative literary figures in this period, Liang Qichao (1873-1929), Lu Simian(1884-1957) and Lu Xun (1881-1936), are chosen to be the foci of investigation, and their most representative theories on xiaoshuo are sorted out to be the objects of detailed study, in order to trace the process of how xiaoshuo acquired the present meaning of imaginative prose narrative and became one of the four major genres of literature together with drama, poetry and prose.