Compared to large towns and cities, small towns usually have greater opportunities for the desired and expected period of sustainable urban development, but they also have some greater risks. In this article we present the basic methodological points and results of departure for the bilateral research project whose main objective was to study the condition of small cities in the Czech Republic and in Slovenia in light of their prospects for sustainable development. The level of sustainable development achieved by small towns was assessed using a range of accessible and mutually comparable indicators from three fields of urban sustainability: economic, social, and environmental. The classification of small towns into three classes of these fields of sustainability was done based on average values of the indicators. Parallel with the selection of the most relevant indicators (together 12, four for each field) of sustainable development of small cities it was necessary to elaborate their typology as well. We anticipate that settlements with 5000 to 15,000 inhabitants can be grouped into four characteristic types with respect to their demographics, functions, genesis, morphology and so on: industrial small towns, employment centers in rural regions, satellite and tertiary small towns.