The notion of capacity development (CD) has been receiving increasing attention as a way to assist the South in its environmental management. Consequently, there has been an exploration of various facets of the capacity issue in the literature and an incorporation of CD in environmental programs of donor agencies. Yet, many of these discussions have remained rather broad, and efforts to develop environmental capacity have shown only limited success. Based on an examination of the capacity needs for environmental management in agriculture and industry, and for dealing with climate change, this review suggests that strengthening domestic capabilities for policy research and innovation as well as for managing technological change may be particularly critical to allow for adaptation of policies and technologies for local conditions and needs. Examination of innovative local experiments on environmental management in developing countries can also provide useful lessons on how to develop and utilize capacity that works under the constrained conditions often found in developing countries. Furthermore, it is important to stress that improving the environment in developing countries also requires capacity in the North to examine and reorient Northern policies that impact the environment, as well as capacity for the environment, in the poorer parts of the world. Ultimately, though, the development of sustainable and appropriate capacity for the environment will require not merely donor-driven programs but a systematic effort driven by Southern governments and organizations.