Current approaches to rural community development in Australia provide for limited government intervention. Such intervention is usually housed within programmes that seek to build the internal capacity of communities to achieve long term socio-economic sustainability. A fundamental implementation strategy for capacity building has been developing local leadership. The underlying assumption of this approach is that good leadership will result in existing resources being mobilised for a more sustainable function and new resources attracted. What though is good leadership in terms of building the capacity of rural communities to develop sustainable socio-economic futures? This paper compares the conceptualisation of leadership within rural development policies and leadership training programmes with the nature of local leadership as it exists in on-ground community building projects. From an in-depth review of the role and nature of local leadership within six Australian rural communities it was found that local leadership could result in improved adaptive capacity if the leadership is similar in nature to Burn's (1978) transformational model of leadership. Within policy, local leadership was most often conceptualised as being similar to this transformational model. However, rural leadership training programmes tended to conceptualise leadership as a top-down process, similar to Burn's (1978) transactional model. While this study of leadership within rural communities revealed that transactional skills, as taught in leadership training programmes, were important for successful project management, such skills did not necessarily result in improved community adaptive capacity. It is suggested that, while transactional leadership can have an important role in influencing the development of rural communities, greater attention needs to be given to developing strategies to support transformational leadership.