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The fiscal relations among the three levels of government in Nigeria is enmeshed with the severe problem most especially state-local government relationship. A number of factors has been attributed to this which include over-dependence of local government on statutory allocations from the state and federal governments, deliberate tax evasion by the local citizenry, creation of nonviable local government areas, differences in the status of local governments in terms of the rural-urban dimension, inadequate revenue and restricted fiscal jurisdiction to constitutional gaps. This study examines the effect of State-Local Government fiscal relations on grassroots development in selected local governments in Lagos state, Nigeria. It adopts a survey research design technique. The main instrument of data collection is questionnaire. Primary data collected were analysed using descriptive statistics, while the relevant hypotheses were tested using Pearson Product Moment Correlational analysis of hypotheses testing with the aid of Statistical Package for Social Science (SPSS 20.0). The findings of the survey revealed that revenue allocation modules between and among the three levels of government have an attendant effect on grassroots development in Nigeria and also that with proper fiscal responsibility exercised by those entrusted with public fund there will be a positive effect on service delivery. The study, therefore, recommends that Local governments should be proactive and more aggressive in their internally generated revenue drives and find new ways of enhancing revenues. The 1999 constitution of the Federal Republic of Nigeria needs to be amended so as to grant financial autonomy to states. The study concludes that in Lagos State, there are good mechanisms in place for local governments to drive revenue generation because of the industrial and cosmopolitan nature of the state which has made fiscal relations between the two tiers to be more harmonious when compared to what is applicable in other states of the federation. [ABSTRACT FROM AUTHOR]