Local economic development provides an excellent policy context to examine Australian intergovernmental relations. In Australia, policies impacting on economic development have traditionally been the preserve of Commonwealth and state governments. Economic restructuring, particularly since the early 1980s, has seen the rise of local government as a more active participant in promoting economic development at the local level. Individual local councils that establish economic development policies place themselves in a scenario that is outside the statutory parameters of their legislative frameworks and often well beyond their resource capacity. This article presents the findings of research into the economic development policies of three Australian metropolitan local governments during the 1980s and 1990s. This research informs the debate surrounding the capacity of individual local governments that seek to establish local economic development policies. It also discusses the constraints experienced by these local governments as they sought to work with the other spheres of government to improve economic conditions and create new job opportunities for local residents.