Many peri-urban areas in developing regions are associated with poverty. The poor peri-urban resident may have moved in and established in precarious conditions, or may have resided in the area before the urban encroachment and so have a rural background. Former poor rural residents living on the fringes of cities are considered to be very vulnerable since they are subjected to a livelihood transmutation while they try to escape from poverty. Drawing on longitudinal quantitative and qualitative data from three communities in the periphery of Mexico City, this paper traces the vicious and enabling processes by which peri-urban small farmers change their poverty status over time. The findings support the importance of multidisciplinary explanatory frameworks for understanding poverty dynamics in peri-urban areas. Micro-level process-based analysis may help to support more appropriate and inclusive social and poverty reduction policies in (peri-)urban areas in developing regions.