With the expanding of city scale and low density horizontal sprawl, the relationship between the economic growth and the externality from city sprawl gradually becomes a hot research topic in the field of urban economy. Therefore, this paper deeply investigates the impact of city sprawl on enterprises' total factor productivity based on China's manufacturing enterprise data. The empirical results show that the relationship between production efficiency of manufacturing enterprises and city sprawl appears U-shape development trend, and the expansion of population could significantly improve production efficiency of manufacturing enterprises. Meanwhile, urban sprawl weakens the positive effect of population on production efficiency of enterprises in some degree. Further sample test indicates that the impacts of urban sprawl on production efficiency are different in different cities, industries, and enterprises, which could provide empirical evidence for formulating urban planning policies.