This study attempts to explore from the perspective of cognitive poetics factors contributing to the formation and transformation of literary tradition. For this purpose, Ⅰ will first propose a cognitive model in terms of schemata, prototypes and procedures, and then discuss the schematization of literary prototypes and the procedures through which to transform schematized prototypes into concrete literary works. Based on the above discussion, I will also investigate types and methods of processing information contained in literary works from other literary traditions and evaluate their role in the formation and transformation of literary tradition. The data for this study will be mostly classical Chinese chuanqi [transmission of the marvelous] fiction from the Tang dynasty (618-907), and references will also be made to literary genres and works from other cultures as well as those from China but produced at different periods of time so as to shed light on inter-cultural and inter-generic interactions and influences of literature.