Sustainable regional and rural development policy could be seen as a tool for the efficient administration and utilization of comparative and competitive advantages of local community. The process of decentralisation and democratisation as a crucial - key instrument for the better local development is ongoing in the Republic of Serbia. In the first step it is connected with further capacity building on the local level, finishing of privatisation and decentralization of real estates on the local level as well as with completing the institutional reform. Local development must be based upon the so-called “good administration” which, in its essence, presupposes local strategic action planning as a basis for regional and rural development and a factor of competitiveness (“bottom-up” approach). The local community must be prepared for the implementation of such approach that means building up the needed institutions (formal and informal agents) and their capability for the creation of needed structures on the local level so as to be able to implement the proposed decisions in an acceptable way and efficiently.