New South Wales (NSW) local government is in the throes of a vigorous debate over the best methods of improving its operations through a comprehensive reform programme. An Independent Local Government Review Panel, set up by the NSW Government, has proposed addressing the “key challenge” of local environmental sustainability by forcibly amalgamating local councils, especially in the metropolitan regions of the state. Using the community participation model, local co-governance structures established by Lake Macquarie City Council (LakeMac) in its Sustainable Neighbourhoods Program (SNAP) as a case study, this study argues that co-governance programmes of this kind represent by far the most promising avenue for tackling the environmental challenges facing NSW local government. We seek to demonstrate that the ground-breaking efforts being undertaken by LakeMac show that NSW local government already enjoys the necessary legislative foundations to initiate successful local co-government initiatives through local community participation. Rather than divisive and expensive compulsory council mergers, we contend that the Panel should instead have recommended that the NSW Government focus on encouraging NSW local government to emulate LakeMac's example in discharging its environmental responsibilities.