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Against the backdrop of accelerating urbanisation in China, the urban-rural divide continues to widen, while cave dwellings along the Yellow River have been largely abandoned, facing the challenge of cultural erosion. This study breaks from conventional conservation approaches by empirically exploring the viability of living heritage in promoting sustainable rural revitalisation and integrated urban-rural development. Employing participatory action research, it engaged multiple stakeholders—including villagers, returning migrants, and urban designers—across 60 villages in the middle reaches of the Yellow River. This collaboration catalysed a “collective-centred” adaptive reuse model, generating multifaceted solutions. The case of Fangshan County’s transformation into a cultural ecosystem demonstrates how this model simultaneously fosters endogenous social cohesion, attracts tourism resources and investment, while disseminating traditional culture. Quantitative analysis using the Yao Dong Living Heritage Sensitivity Index (Y-LHSI) and Living Heritage Transmission Index (Y-LHI) indicates that the efficacy of collective action is a decisive factor, revealing an inverted U-shaped relationship between economic development and cultural preservation. The findings further propose that living heritage regeneration should be reconceptualised from a purely technical restoration task into a viable social design pathway fostering mutually beneficial urban-rural symbiosis. It presents a replicable “Yao Dong Solution” integrating cultural sustainability, community resilience, and inclusive economic development, offering insights for achieving sustainable development goals in similar contexts across China and globally. Full article