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Using qualitative and quantitative data from the Urban Livelihoods Study (ULS), this paper identifies illness as a key constraint on bustee (slum) households' ability to secure their livelihoods. The consequences of ill‐health for bustee dwellers are examined and the coping strategies employed are described. The common responses to illness are found to often have negative implications for the human, material and social capital of households, thus making them ever more vulnerable. In order to redress this situation, action is needed on three fronts: reduction in the risks of morbidity, a large portion of which are poverty‐related, stemming from poor living conditions and inadequate nutrition; provision of accessible affordable quality healthcare for adults; and complementary support measures to protect households and individuals from the knock‐on effects of illness. Copyright © 2000 John Wiley & Sons, Ltd.