As a pioneer commentator on Ming drama, the late-Ming thinker Li Zhi is unique in introducing unorthodox viewpoints into drama commentary. In so doing, he elevated the status of popular literature such as drama and fiction and improved the possibilities for making Chinese drama criticism more theoretical and systematic. The importance of Li Zhi in the histories of Chinese drama and literary criticism lies not only in his original interpretation, but also in his hypothesis of literary essence and its corresponding perspective on stylistic transformation. His theory helped readers and critics acquire a keener understanding of the nature of Chinese drama. Li Zhi's evocation of both drama aesthetics and dramatic art not only provided a theoretical basis for contemporary and later writers and artists to advocate the expression of true feelings in art and literature, but also enriched late-Ming literary thought and heightened the aesthetic consciousness in the writer as well as in the reader. This paper explores Li Zhi's hypothesis of literary essence, his idea of "transformation work" (huagong) as the ideal artistic state of drama, his commentary on the thematic presentation and characterization of the Pipa ji (The Lute), and finally his argument for the dialectic relation between reality and drama in the play. The author suggests that Li Zhi, as a reader and a commentator, constructed in the drama text a "professional field of criticism," an embedded critical space in which various critics conducted their conversations. Criticism as interpretation could achieve its full potential in constituting a "professional field" if guided and directed. According to Li Zhi, this "professional field of criticism" aspired to a fusion of horizons: the display and appreciation of various critical views and voices. It is here that Li Zhi's commentaries on chuanqi drama led readers to ruminate on the essence of fiction and drama, and opened up the possibilities of constructing a theoretical horizon and critical strategies. Li Zhi's theory had great significance in the development of late-imperial Chinese literary criticism.