Objectives. We investigate the neighborhood contexts in which low-income families negotiate welfare reform.

Methods. Using data from the Three-City Study and U.S. Census, we follow 1,059 low-income women from 1999 to 2005 tracking their neighborhood quality, employment, and welfare use. We evaluate whether improvements in residential contexts facilitate transitions to economic self-sufficiency, but also test the reverse possibility.

Results. Despite living in similar neighborhoods in 1999, women who left welfare experienced larger reductions in neighborhood disadvantage than women who remained on welfare. Likewise, women who left welfare with employment achieved larger increases in neighborhood quality than those who left welfare without work; the latter experiencing neighborhood change no different than those who stayed on welfare.

Conclusions. Neighborhood conditions are, at minimum, associated with welfare outcomes. Findings suggest that neighborhood quality increases after women leave welfare, though we cannot reject the possibility that better neighborhoods lead to better welfare outcomes.