The spatial development of Estonian cities is at the present time characterised by patchy patterns of urban sprawl, mostly with little regard to infrastructure, public services, location of workplaces, and preservation of agricultural productivity. The article analyses the spatial development of urban regions after 1991 and how this is linked to decision-making processes. The focus is on the planning policies of local governments and the causal links between these and urban development. Empirical studies have been carried out in Audru, Sauga, Paikuse, and Takhuranna municipalities around the city of Parnu and also in Harku, Viimsi, Rae, and Saku municipalities around Tallinn. The studies were based on in-depth interviews with local politicians and administrators. Background material on the physical urban sprawl around Tallinn was provided from a study by University of Tartu. Around Parnu, registration of the physical development was carried out through field observations and discussions with local planners. The local authorities were quite unprepared for the new liberal legislation which gave them responsibility for spatial planning. Private ownership rights and vested interests of real-estate developers have in many cases undermined public interests. The suburban municipalities have, however, gradually learned; some have developed a proactive planning policy, while others have applied reactive policies to meet the challenges created by the new settlements.