We propose VE-KD, a novel method that balances knowledge distillation and vocabulary expansion with the aim of training efficient domain-specific language models. Compared with traditional pre-training approaches, VE-KD exhibits competitive performance in downstream tasks while reducing model size and using fewer computational resources. Additionally, VE-KD refrains from overfitting in domain adaptation. Our experiments with different biomedical domain tasks demonstrate that VE-KD performs well compared with models such as BioBERT (+1% at HoC) and PubMedBERT (+1% at PubMedQA), with about 96% less training time. Furthermore, it outperforms DistilBERT and Adapt-and-Distill, showing a significant improvement in document-level tasks. Investigation of vocabulary size and tolerance, which are hyperparameters of our method, provides insights for further model optimization. The fact that VE-KD consistently maintains its advantages, even when the corpus size is small, suggests that it is a practical approach for domain-specific language tasks and is transferrable to different domains for broader applications.