Local governments possess different degrees of autonomy in policy-making and implementation. Small and medium-sized towns (SMSTs) tend to be curtailed with regard to their policy capacity compared to larger cities with more economic and political power. However, this does not imply that SMSTs are not important policy-making entities. We review research on public policies in SMSTs alongside the three steps of the public policy process: policy design, implementation and impact. We argue that future research should put more emphasis on policy implementation and impact as well as on causal links between the three steps. We also suggest that it would be fruitful to extend the scope of studied policies beyond local development policies to account for the diversity of local policy designs. New innovative environmental, social, and economic sustainability ideas can emerge out of SMSTs and SMSTs are finding new strategies to overcome constraints that limit their policy-making capabilities.