This paper presents VQ-SGen, a novel algorithm for high-quality sketch generation. Recent approaches have often framed the task as pixel-based generation either as a whole or part-by-part, neglecting the intrinsic and contextual relationships among individual strokes, such as the shape and spatial positioning of both proximal and distant strokes. To overcome these limitations, we propose treating each stroke within a sketch as an entity and introducing a vector-quantized (VQ) stroke representation for fine-grained sketch generation. Our method follows a two-stage framework - in the first stage, we decouple each stroke's shape and location information to ensure the VQ representation prioritizes stroke shape learning. In the second stage, we feed the precise and compact representation into an auto-decoding Transformer to incorporate stroke semantics, positions, and shapes into the generation process. By utilizing tokenized stroke representation, our approach generates strokes with high fidelity and facilitates novel applications, such as conditional generation and semantic-aware stroke editing. Comprehensive experiments demonstrate our method surpasses existing state-of-the-art techniques, underscoring its effectiveness. The code and model will be made publicly available upon publication.