There is an international consensus that urban sanitary conditions are in great need of improvement, but sharp disagreement over how this improvement should be pursued. Both market-driven and state-led efforts to improve sanitation in deprived communities tend to be severely compromised, as there is a lack of effective market demand (due to collective action problems) and severe barriers to the centralized provision of low-cost sanitation facilities. In principle, community-driven initiatives have a number of advantages. But community-driven sanitary improvement also faces serious challenges, including: 1) The collective action challenge of getting local residents to coordinate and combine their demands for sanitary improvement; 2) The co-production challenge of getting the state to accept community-driven approaches to sanitary improvement, and where necessary to co-invest and take responsibility for the final waste disposal; 3) The affordability challenge of finding improvements that are affordable and acceptable to both the state and the community – and to other funders if relevant; 4) The trans-sectoral challenge of ensuring that other poverty-related problems, such as insecure tenure, do not undermine efforts to improve sanitation. Each of these challenges is analysed in some detail in the pages that follow. The report then goes on to examine two community-driven approaches to urban sanitation improvement that have been expanding for more than two decades, one in Pakistan and the other in India. It is argued that a large part of their success lies in the manner in which they have met and overcome the aforementioned challenges. Indeed, both overcame the co-production challenge to the point where sanitary improvement became the basis for attempts to radically improve community–government relations – relations unfortunately also very dependent on other political dynamics. They also systematically tackled other, less institutionally-rooted challenges, such as the lack of local technical skills in building and maintaining improved sanitary facilities.