The Directorate of Urban Development was established during the year 1985-86 to direct, control and monitor the activities of the Urban Local Bodies in the state of Himachal Pradesh. The Directorate has been assigned the responsibility to look after the legislative, Administrative and Development activities of 54 Municipalities(Local Urban Bodies) i.e. 2 Municipal Corporation, 31 Municipal Councils and 21 Nagar Panchayats which covers 5.59 Lac urban population(2001 census report) which is about 9.2% of the total population of the state.
From 1986 to May,1994, the Directorate was performing nominal regulatory functions which merely relates to the coordination of development works, release of grants and passing of municipal budgets. Consequent upon the 74th amendment of the constitution and the enactment of 3 new Municipal Acts viz. H.P. Municipal Corporation Act, 1994, Municipal Act, 1994 and H.P Municipal Services Act 1994, numerous Constitutional, Statutory and obligatory functions are entrusted to the Directorate. The 74th Constitutional Amendment envisages greater decentralization of administrative , legislative and financial functions to the Urban Local Government coupled with more and more functional autonomy to all the municipalities.