To address the current issues such as lower-than-expected passenger intensity of medium-capacity rail transit and the fiscal pressure on local governments, this study, based on an analysis of the main underlying causes, proposes an optimized approach to determining the construction conditions of medium-capacity rail transit lines through an efficiency and benefit competitiveness analysis. First, it analyzes the situation confronting medium-capacity rail transit: urban population growths tends to stabilize, and rail transit is facing strong competition from private cars, electric bicycles, and other transportation modes. Second, it proposes an optimized approach to determining the construction conditions of medium-capacity rail transit lines and conducts an efficiency and benefit competitiveness analysis of medium-capacity rail transit in relation to other transportation modes. In terms of "door-to-door" time efficiency, the analysis aims to ensure that medium-capacity rail transit is comparably competitive with private cars, electric bicycles, and other modes of transportation; in terms of input-output economic benefits, it aims to ensure that medium-capacity rail transit is more competitive than metro systems. Finally, it quantitatively proposes the construction conditions for medium-capacity rail transit lines. The results suggest that the terminal stations of medium-capacity rail transit lines should be located within 30 km of the city center, the travel speed should exceed 35 km/h, the total access and egress time at both ends should be kept within 20 min, the initial passenger intensity should exceed 5,000 passengers/(km·d), and the current population and employment density within 1 km² along the lines should exceed 10,000 persons and jobs/km². These findings can provide technical reference for local governments to scientifically planning medium-capacity rail transit lines.