This article examines the workings and effects of the penalization of poverty in urban Brazil at century’s turn to uncover the deep logic of punitive containment as state strategy for the management of dispossessed and dishonored populations in the polarizing city in the age of triumphant neoliberalism. It shows how ramifying criminal violence (fed by extreme inequality and mass poverty), class and color discrimination in judicial processing, unchecked police brutality, and the catastrophic condition and chaotic operation of the carceral system combine to make the aggressive deployment of the penal apparatus in Brazil a surefire recipe for further disorder and disrespect for the law at the bottom of the urban hierarchy and steers the country into an institutional impasse. The policy of punitive containment pursued by political elites as a complement to the deregulation of the economy in the 1990s leads from the penalization to the militarization of urban marginality, under which residents of the declining favelas are treated as virtual enemies of the nation, tenuous trust in public institutions is undermined, and the spiral of violence accelerated. Brazil thus serves as a historical revelator of the full consequences of the penal disposal of the human detritus of a society swamped by social and physical insecurity. Drawing parallels between penal activity in the Brazilian and the U.S. metropolis further reveals that the neighborhoods of urban relegation wherein the marginal and stigmatized fractions of the postindustrial working class concentrate are the prime targets and proving ground upon which the neoliberal penal state is concretely being assembled, tried, and tested. Their study is therefore of urgent interest to analysts of international politics and state power at the dawn of the twenty-first century.