This article investigates the main mechanism of dialect formation, which is a fundamental issue in the historical development of Chinese. Based on the analyses of the distribution of modern dialects, the historical development of Han Chinese, and human language ability, this article proposes a new explanation for the formation of Chinese dialects. The analyses provided demonstrate that the main mechanism of dialect formation is imperfect language shift. Thus, the formation of Chinese dialects is the result of horizontal transmission, not the result of vertical transmission or even of a combination of vertical and horizontal transmission.