This paper discusses the application of System Dynamics approach to the study of local education development planning which fosters a tentative SD model applicabl to local education development strategy and policy analysis in the urban area of Shanghai. It can help decision making of the local government education authorities in this area. Based on education economic theory and the socio-economic development situation in Shanghai, this model, using DYNAMOIII language, contains four socio-economic sectors – education, economic, social structure and social life, from which 730 variables were attained with 90 level equations 179 rate equations.The present study shows that the simulation model is not only feasible and practical for the study on local education system in Shanghai, but also applicable and useful to other urban areas as well.