The pilot project Charlottenburg Block 118 in Berlin, Germany, as one of the earliest cases of the preservation and rehabilitation of European inner city neighbourhoods, is a milestone in the evolution of urban renewal in the West. Based on the social-oriented housing policy and the introduction of social housing in urban renewal, the strategies on housing improvement, heritage protection, cost control, public participation and small enterprises were integrated in the pilot project. Due to a series of innovative measures in transformation methodology, renovation technology and implementation process, the project successfully improved the living conditions for the original population on the one hand, and well protected the historic buildings and environments on the other hand. The experience of Charlottenburg Block 118 had significantly contributed to the transition of mainstream urban renewal approach in Germany and other European countries. In the fields of the combination of social housing and urban rehabilitation, the balance between heritage conservation and housing improvement, the preservation and renovation of modern residential architecture, the institutional and technical innovation based on economic feasibility, as well as the support to local small enterprises, this case study may also provide inspirations for China’s current urban renewal transition, in particular for the rehabilitation of residential districts.