This study examines questions relating to the nexus between development projects and different forms of local conflict. It does so by examining how the World Bank/Government of Indonesia’s Kecamatan Development Project (KDP) interacts with social tensions and local conflict, and how it affects the nature and extent of local conflict management. By local conflict we mean disputes (violent and non-violent) that play out at the local level—that is, at the sub-district level and below. While KDP was not designed as a conflict reduction or management program, it provides a particularly interesting venue for examining the relationship between development (projects) and local conflict. First, at a cumulative cost of over a billion dollars, and having operated in over 28,000 villages (40% of the total) in Indonesia, KDP is the largest social development project in Asia and one of the World Bank’s flagship “community-driven development” (CDD) programs. While many claims, and counterclaims, are made regarding the efficacy of CDD projects generally, and KDP in particular, the evidence base on which to assess any of them remains rather thin. Second, as the “community-driven” banner implies, KDP is a decentralized project that affords significant opportunities for discretion by local level staff and input by local communities at every stage in the design, selection, and implementation process. Its primary objective is to help participants secure small sub-projects (roads, bridges, water pipes) that accord with their needs, priorities, and values. KDP attempts to realize this objective by applying the design principles of participation, transparency, local choice and accountability to a competitive bidding process, in so doing striving to help villagers (and especially the most marginalized groups) acquire new civic skills and decision-making opportunities for realizing their interests and aspirations. Such skills and opportunities are vital for mediating in constructive ways the conflicts—generated by competitive bidding for finite resources, and the issuance of challenges to elite power KDP itself inevitably produces. These skills may also help in the management of other conflicts that are not related to the project. Does KDP, in fact, achieve these goals of heightening conflict mediation capacities? How does it compare with other development projects and the conflicts they inevitably generate? Third, KDP operates in Indonesia, a country in the midst of an ongoing and uneven democratic transition, a process that has, at times, been accompanied by violence. In addition to outbreaks of large-scale and violent communal conflict in a number of locations, and secessionist conflict in two provinces, widespread (and often violent) local conflict has occurred across the country. What are the strengths and limitations of projects like KDP in an unstable social and political environment, where identities, rules, and group relations are being reconfigured, where longstanding grievances now have the space to surface, and where access to power is being renegotiated? Can outside interventions such as KDP support progressive social change in this type of dynamic environment? If so, how?