Bihar is among the least urbanized states in India with a level of urbanization just above 10% in 2001. The present study suggests a four-stage strategy for the urban development of Bihar. The stages are- (i) Increase in the rate of urbanization (ii) Increase in the resources of Urban Local Bodies (ULBs) (iii) Improvement in delivery of urban services, and (iv)Local economic development for employment generation in cities. The current state of finances of ULBs in Bihar is very poor on account of low yield of own revenue sources and low level of grants. The quality of services provided by ULBs in Bihar, measured by expenditure on these services is inferior in comparison to standard benchmarks and other selected cities in India. The location quotient analysis of cities in Bihar reveals lack of industrial development, and reliance on primary activities for employment. Positive correlation between economic growth and share of service sector in employment and negative correlation between economic growth and primary sector employment justify the need for efforts towards development of industrial and service sectors in the state.