In Africa, Asia, and Latin America, the number of towns and their populations are expected to double within 15 years, and again within 30. Already, one-third of Africans and Asians live in towns of 2,000 to 200,000 people. This rapid urbanization makes improving water supply and sanitation services (WSS) central to economic growth and to achievement of the Millennium Development Goals. But sustainable provision of these services, particularly in small towns, presents challenges that may require new approaches to planning, financing, and service delivery. This guidance note on the principles of town WSS provides a methodology for setting targets and mobilizing resources to achieve these targets. The key activities proposed include: clarifying key actors' roles, consulting with users, defining service levels based on user preferences and willingness to pay, confirming investment sources, phasing in investments incrementally to reflect demand, analyzing costs and revenues realistically, identifying professional support, establishing systems for monitoring progress, and allowing for periodic review and revision of the business plan.