The agglomeration of economic entities and economic activities in different geographic spaces produces numerous cities, and the division of labor and economic connections between cities form urban networks. Industrial agglomeration in cities may bring about agglomeration economy or agglomeration diseconomy, and specialized agglomeration and diversified agglomeration have different effects on urban production efficiency, so MAR externality and Jacobs externality may have different effects on urban production efficiency and show regional heterogeneity. A city can “borrow” the economic agglomeration externalities of other cities in the network, but its production resources may also be “concentrated” to other cities. Therefore, the impact of urban network externalities on urban production efficiency has two reverse mechanisms: “borrowing scale effect” and “agglomeration shadow effect”. The improvement of inter-city transportation conditions is conducive to the development of “borrowing scale effect” and “agglomeration shadow effect”, while the enhancement of industrial function complementarity will strengthen “borrowing scale effect” and weaken “agglomeration shadow effect”. Based on the analysis of 285 cities in China from 2003 to 2019, we find that at the national level, MAR externalities have an inverted U-shaped relationship with urban production efficiency, while Jacobs externalities have a negative impact on urban production efficiency. There is a significant negative correlation between urban network externalities and urban productivity (“agglomeration shadow effect” is stronger than “borrowing scale effect”), and the improvement of traffic conditions will strengthen the negative effect, while the improvement of urban functional complementarity will weaken the negative effect. At the level of urban agglomeration cities and non-urban agglomeration cities, the impact of Jacobs externality on the production efficiency of urban agglomeration cities presents an inverted U-shaped trend, but it has a negative impact on the production efficiency of non-urban agglomeration cities. The externality of urban network positively affects the production efficiency of urban agglomeration and non-urban agglomeration, and the improvement of transportation conditions and the functional complementarity will strengthen this positive impact. At the level of ten major urban agglomerations, the effects of industrial agglomeration externalities and urban network externalities on urban production efficiency show diverse heterogeneity. Therefore, the industrial division between cities should be further strengthened to improve the complementarity of urban functions; the development of urban agglomerations should focus on improving internal traffic and industrial division, and improve the integrated development system and mechanism; non-urban agglomeration cities should identify their industrial development advantages and positioning, form a reasonable division of labor and functional complementarity with other cities, and improve traffic accessibility.