Rapidly-industrializing, developing countries face increasing environmental disaster potential. Rising disaster losses are an indicator of non-sustainable development. Analysis of flood hazard in peninsular Malaysia exemplifies these problems. Malaysia has a rapidly-growing economy and evidence suggests that the flood hazard is worsening largely because of rapid urbanization and development. This is revealed by analysing trends in five 'flood hazard factors': variableds which explain flood diaster potential. mood risk, exposure and damage potential are all increasing. High levels of poverty in flood plains suggest that peoples' vulnearability to floods is not being reduced. Alarge proportion of intervieewed flood-prone households have low incomes, especially in eastern peninsula locations, and reported flood damages are high. Indigenous housegold flood adjustments, including 'stilt houses', limit flood vulnerability especially in the rural east. Unfortunately, modernization threatens traditional life-styles and erodes indigenous hazard-adaptations. State response is heavily engineering-oriented and is failing to address development-induced flood hazard potential. Policies are required which marry hazard reduction to poverty reduction and sustainable development.