Globally, small rural communities frequently are demographically similar to their neighbours and are consistently found to have a number of problems linked to the international phenomenon of rural decline and urban drift. For example, it is widely noted that rural populations have poor health status and aging populations. In Australia, multiple state and national policies and programs have been instigated to redress this situation. Yet few rural residents would agree that their town is the same as an apparently similar sized one nearby or across the country. This article reports a project that investigated the way government policies, health and community services, population characteristics and local peculiarities combined for residents in two small rural towns in New South Wales. Interviews and focus groups with policy makers, health and community service workers and community members identified the felt, expressed, normative and comparative needs of residents in the case-study towns. Key findings include substantial variation in service provision between towns because of historical funding allocations, workforce composition, natural disasters and distance from the nearest regional centre. Health and community services were more likely to be provided because of available funding, rather than identified community needs. While some services, such as mental illness intervention and GPs, are clearly in demand in rural areas, in these examples, more health services were not needed. Rather, flexibility in the services provided and work practices, role diversity for health and community workers and community profiling would be more effective to target services. The impact of industry, employment and recreation on health status cannot be ignored in local development.