The first germs of novellas appeared during the Han 漢 (206 BCE-220 CE) and Wei 曹魏 (220-265) periods. The word xiaoshuo originally meant "conversation" or "small talk". Only during the Han period the term was used for a literary genre.
The word xiaoshuo as a genre is first mentioned in Liu Xin's 劉歆 bibliography Qilüe 七略. In the imperial bibliography Yiwenzhi 藝文志 in the official dynastic history Hanshu 漢書 the genre of xiaoshuo is seen as a subcategory of the Masters and Philosophers (zi 子), as a kind of "knowledge from the street". Similar concepts about xiaoshuo are brought forward by Huan Tan 桓譚 (23 BCE-56 CE) in his book Xinlun 新論.
Examples of early novellas are semi- or pseudo-historical texts like the Shanhaijing 山海經 or Mu Tianzi zhuan 穆天子傳. The history Yizhoushu 逸周書 also includes parts that can be seen as historical novellas. The 15 xiaoshuo stories listed in the Hanshu bibliography are all lost. Only their titles are preserved, like Yi Yin shuo 伊尹說 "The story of Yi Yin", Yuzi shuo 鬻子說 "The story of Master Yu", Huangdi shuo 黃帝說 "The story of the Yellow Emperor", Fengshan fangshuo 封禪方說 "Stories about the magicians of the Fengshan Sacrifice", or Yu chu Zhou shuo 虞初周說. Only of the Qingshizi 青史子 and the Yi Yin shuo, some fragments are preserved.
The authors of these stories were Han period persons. The authorship of the Shenyijing 神異經 is attributed to Dongfang Shuo 東方朔, a Daoist master. Which book was to be categorized as a xiaoshuo, is less clear. The Shanhaijing and Mu Tianzi zhuan, for example, were seen as geographical works in the older bibliographies, likewise the Shenyijing and Hainei shizhou ji 海內十洲記. The story collections Han Wudi gushi 漢武帝故事 (also called Han Wu gushi 漢武故事) and Xijing zaji 西京雜記 were seen as "miscellaneous histories" (zashi 雜史) with historiographical value, and similarly, the Han Wudi neizhuan 漢武帝內傳, Hanwu dongming ji 漢武洞冥記 were seen as biographies.
The same was valid for the many later collections of biographies of Daoist masters like the Soushenji 搜神記, Soushen houji 搜神后記, Yiyuan 異苑 or Xu qixieji 續齊諧記. Only from the Song period 宋 (960-1279) on these books were separated from "scholarly" writings and put into the category of fiction.
The largest collection of Han period stories is the collectanea Gu xiaoshuo goushen 古小說鉤沉 compiled by the Republican writer Lu Xun 魯迅 (1881-1936). The earliest novella is Han Wudi gushi. It is still very near to a historical report but contains some narrative elements not interesting for historians or which can not really believed, like his travels to Bogu valley 柏谷 or his discussion with Yan Si 顏駟, or the statements about the Queen Mother of the West 西王母 or Dongfang Shuo.
The imperial bibliography Jingjizhi 經籍志 in the dynastic history Suishu 隋書 lists 25 books of novellas, the greatest part of which was already lost at that time. Except the Yandanzi 燕丹子 and the Shishuo xinyu 世說新語, practically nothing has survived.
Seen from the titles listed in the Jingjizhi, the books contained a lot of semi-historical accounts, stories about ghosts and supernatural events, but also correct historical events. Contemporaries already criticized books like Pei Qi's 裴啟 Yulin 語林 (Pei Qi yulin 裴啟語林) as nonsense. Nonetheless such books also served as source for semi-historical accounts like the Shishuo xinyu.
The Tang period 唐 (618-907) critic Liu Zhiji 劉知幾 (661-721), author of the Shitong 史通, said that historiography and stories came from the same hands. The Song period scholar Ouyang Xiu 歐陽修 (1007-1072) was the first to clearly separate novellas from historiographic books.
The Yandanzi describes the travel of Jing Ke 荊軻, a retainer of Prince Dan of Yan, to the court of the king of Qin 秦 in order to kill him. The Shishuo xinyu is a collection of stories about and conversation of various persons from the very late Han, Wei and Jin periods. It is famous for its literary lightness and has often been studied as a source for the current of the so-called "pure conversations" (qingtan 清談) popular during that time.
There were also some humorous collections, like Handan Chun's 邯鄲淳 Xiaolin 笑林, Yang Jiesong's 陽玠松 Jieyi 解頤 (also called Tansu 談藪) from the Northern Qi, and Wei Dan's 魏澹 Xiaoyuan 笑苑 from the Sui period.
The oldest collection of stories was Yin Yun's book Xiaoshuo 小說. It included a lot of stories arranged chronologically, with remarks to most of them. It is not preserved but had to be reconstructed by collecting fragments quoted in other books. These parts can be used to compare statements in the Shishuo xinyu.
A very prevalent genre of stories were anecdotes about supernatural events, like Zu Taizhi's 祖臺之 (4th cent.) Zhiguai 志怪, Cao Pi's 曹毗 (dates unknown) Zhiguai 志怪, Master Zhi's 殖氏 Zhiguaiji 志怪記, Kong Yue's 孔約 (?) Kongshi zhiguai 孔氏志怪 or Zu Chongzhi's 祖沖之 (429-500) Shuyiji 述異記. This genre was called zhiguai 志怪 "records of strange events". Accounts on strange events are even included in the Shishuo xinyu.
The most famous collection of such stories is Gan Bao's 干寳 (286-336) Soushenji. Modern editions have been enlarged by adding accounts of later date. The relatively high literary quality made it a model for later collections like Tao Qian's 陶潛 (c. 369-427) Soushen houji, Liu Jingshu's 劉敬叔 (dates unknown) Yiyuan, Wang Jia's 王嘉 (d. 390) Shiyiji 拾遺記, or Wu Jun's 吳均 (469-520) Xu qixieji. A lot of such books are unfortunately lost, and we only know some fragments of further ghost stories like the Lieyizhuan 列異傳, Youminglu 幽明錄 or Qixieji 齊諧記.
Wang Jia's Shiyiji is relatively close to historical accounts and provides information otherwise not found in historiographical works. Zhang Hua's 張華 (232-300) Bowuzhi 博物志 can be seen as a first attempt of an encyclopedia. It is seen as the precursor of books like the Youyang zazu 酉陽雜俎.
With the propagation of Buddhism novellas also became an instrument of religious mission. Books with religious contents were Yan Zhitui's 顏之推 (531-591) Yuanhunzhi 冤魂志 (also called Huanyuanzhi 還冤志) and Jilingji 集靈記, Liu Yiqing's 劉義慶 (403-444) Xuanyanji 宣驗記, Wang Yan's 王琰 (dates unknown) Mingxiangji 冥祥記 or Hou Bai's 侯白 (dates unknown) Jingyiji 旌異記. Daoists, on their part, also propagated their beliefs in response to the competitor religion of Buddhism. Their stories mostly focus around immortality, like Wang Fu's 王浮 (dates unknown) Shenyiji 神異記 or Ge Hong's 葛洪 (283-343) Shenxianzhuan 神仙傳.
It was especially the type of stories on supernatural events that was very popular and influenced the novellas of the Tang period. Numerous stories invented during the Han period and the period of the Southern and Northern Dynasties 南北朝 (300~600) were perpetuated later and found their way into great novels and theatre plays. The story of Lu Fen 盧汾 in the Soushenji reporting his dream that he entered an ant's hole influenced the story Nanke taishou zhuan 南柯太守傳; the story of Master Humu 胡母 is the origin of the story of Lan Shang 濫觴 in Liu Yi zhuan 柳毅傳; the story of Miss Shi 石氏 from the Youminglu 幽明錄 is to be found in the story Lihunji 離魂記; the story of Yang Lin 楊林 is the origin of the Zhenzhongji 枕中記; the story of the rebirth of Xu Xuanfang's 徐玄方 daughter in the Soushen houji is later resumed in the Du Liniang ji 杜麗娘記 and the theatre play Mudanting 牡丹亭.
The Qing period 清 (1644-1911) novel writer Pu Songling 蒲松齡 (1640-1715) made also use of ideas originating in stories from earlier times.