The historic sites of small town are mostly composed of large-scale self-built house. Aimed at their universal present situation and renewal dilemma, on the basis of combing the concept of pattern of compensatory replacement of demolished housing and relevant research, this paper takes Chaijixiang as an example and summarizes the characteristics and difficult point of compensatory replacement of demolished housing in small town; it performs discussion from four aspects, including transformation of updating subject, construction of renewal policy, coping with morphological difference and involvement of cultural factors, it puts forward whole process coping strategy that includes evaluation of present situation, space regulation, style control and autonomy implementation, so as to provide reference for the renewal of self-built house at the historic site of small town.