Governments in Australia are allocating resources to rural communities to increase their sustainable social, economic and environmental development. One of the projects funded for this purpose was 'The Gippsland Community Building Program', undertaken in three rural communities in Victoria in two stages from 2001-2004. A facilitator was appointed for each community project, and local government developed a model of governance in response to the characteristics and needs of the community. External evaluation of the program was undertaken in two stages over two years and consisted of a document audit, interviews and focus groups. Indicators used in the final evaluation to analyse the impact of each project on its community were 'citizen participation', 'community structure' and 'development instruments'. The governance structures were found to be particularly important, although results from each community project were also affected by the community's characteristics, the project design, and the role of the facilitator. Better project outcomes resulted from transparent governance structures, and consultation with and encouragement of the grassroots community to become actively involved and take responsibility for outcomes with assistance from the facilitator. Governance structures that encouraged inclusive local grassroots ownership of projects were associated with successful community building programs.