This paper looks at the urban development of transition countries in 1991–2010, primarily focusing on the last decade. Cities in transition face a unique set of challenges that came forth due to interplay of the legacy of socialist urban policies and the transition to the market economy. The socialist urban policies restrained growth of the largest cities and distorted the spatial equilibrium towards more uniform distribution of urban population. The transition to the market economy reduces distortions, but the convergence is slow. Housing market rigidities, inadequate urban infrastructure, and inconsistent government policies prevent people from moving to the largest cities.