Urban poverty and social exclusion are overwhelming concerns with more than 32% of the world's urban population living under precarious housing conditions. The paper presents findings from three studies documenting the evolution of a squatter community on the southern edge of Sao Paulo city. The qualitative data collected between the late 1990s and 2007 will highlight critical socio-environmental living conditions in the periphery. Benefits and limits of water supply and sanitation upgrading projects will also be identified. Recent directions in public policy addressing these social issues are reviewed. The paper underlines the pressing demand for more inclusive decision-making processes in the planning and implementation of sustainable community development. URBAN DESIGN International (2008) 13, 3-20. doi:10.1057/udi.2008.2