This article examines the process of local development within the context of restructuring in hinterland British Columbia, Canada. The role of local development in the reconstruction of hinterland space is attracting considerable research attention, building upon an existing body of work from Canada and elsewhere, which is steadily refining our understanding of the local development process. Through a case study of two communities, this article seeks to enhance the theory–practice coordination of this work by using a regulation approach to examine the process, organizational structures and relationships inherent in local development. The communities in this study used local development both to pursue economic diversification and also to offset the uncertainty caused by economic and political restructuring. The findings illustrate that the case communities responded to restructuring in a systematic manner. This shows that the practice of local development may be related to theoretical interpretations of institution‐building. Regulation theory provides a framework within which to forge a link between the practical dimensions of the local development process and the concept of building local institutions. Specifically, the development of a local mode of social regulation is dependent upon the stability and coordination of a locally based development institution.