Government in Australia at all levels is putting increasing emphasis on engaging communities and supporting community capacity. Whole of government coordination to support the vitality of communities has broad support. The difficulty has been in how to achieve it. Rather than seeking the “best” model of engagement, I contend that a more flexible system of governance is needed to allow government agencies to better manage the dilemmas and trade offs inherent in supporting community capacity. This calls for changes in policy, structures and practice. Most importantly it demands changes in the assumptions, values and the culture of public administration. This paper outlines some of these key approaches to government’s role is supporting communities and describes important challenges and opportunities for government agencies.