At the beginning of the 21st century, the cities in Latvia offer significant opportunities for growth, economic prosperity, and improvement in the wellbeing of urban residents. Urban reforms are also important facilitators of sustained economic and social development as well as more democratic governance. Post-socialist cities in Latvia have gained political influence since the recent political and fiscal decentralization shifted power and responsibilities to local governments. In this context, local government policies affecting urban areas – planning, housing, transportation, and the delivery of urban services – have major ramifications for the efficient operation of businesses and the social wellbeing of households. The paper concentrates on the important policies and challenges that affect Latvia’s cities. It demonstrates that the fragmentation of governance combined with fiscal stress has eroded the ability of urban local governments to address urban issues in a coherent manner. It argues that an emphasis on urban policy in Latvia will enhance the competitiveness of urban economies and contribute to more balanced social development.