This paper examines the challenges and prospects of local government and community development in Nigeria. It reviewed the concept of local government, community development and community development practice in Nigeria. The paper concludes that while the basic constitutional mandate for the creation of local government is to meet the peculiar needs of the people at the grassroots, it is however pathetic to note that local government has demonstrated incompetence in this regard. Given the myriads of challenges faced by local governments in its constitutional roles, it recommends among others that while local government should remain as a third tier of government, it should be empowered by constitutional provisions in areas of resources and enabled environment for the development of its communities.