Preheat oven to 350°. Grease an 8- or 9-inch square baking pan.
In a small bowl, mix flour and 1/4 cup sugar. With a pastry blender or two knives, cut in butter until mixture resembles coarse crumbs. Press crumbs into bottom of baking pan.
Bake 20 minutes or until golden brown. Cool pan on a wire rack.
In a small mixer bowl at medium speed, beat cream cheese, 1/3 cup sugar, egg, and vanilla until smooth.
With a fork, break up cranberry sauce. Spread over cooled crust. Top with cream cheese mixture. Sprinkle top with walnuts.
Bake 35 minutes. Cool pan on wire rack.
Store in the refrigerator. Cut into squares and serve cold.
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