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The extensive research on waste management has primarily remained confined to metro cities and focused on economic and environmental issues. The present study explores waste management in smaller urban areas from an institutional standpoint, mapping formal and informal players onto a two‐dimensional framework: institutional type and institutional strength. The analysis is based on data accumulated through in‐depth interviews and focus group discussions in three towns of India. Despite the absence of formal acknowledgment, it establishes a continuum between formal and informal actors whose efforts to collect waste and provide public goods and services are mutually supportive. Although the informal sector is ranked lower, there is little variation in institutional strength between the formal and informal sectors. A formal‐informal hierarchy hinders informal waste collectors from moving up the value chain. The paper argues against separating the formal and informal actors in urban policy and planning. A waste management system that is formally integrated is required to extract greater economic value from waste and to strengthen the informal‐formal continuum. This should enhance both the wages and working conditions of waste workers. [ABSTRACT FROM AUTHOR]