Urban development in Nairobi, Kenya, is characterized by spatial inequality and fiscal exclusion. Over half the city’s residents live in informal settlements such as Mathare, where state-led upgrading has repeatedly faltered due to affordability constraints and governance failures. This paper explores how land value capture (LVC) can support equitable upgrading by channeling the increments of land appreciation into subsidies for low-income residents. Drawing from my field engagement in Mathare 4B, this paper proposes a redistributive LVC model that taxes the land value uplift associated with formal development and redirects revenue to shared infrastructure, future slum upgradations and rent relief. However, this approach requires participatory planning, tenured land, and housing design. Stakeholder behavior in Nairobi’s informal settlements is shaped by uncertainty, mistrust, and the collective memory of exclusion. This paper applies game theory to model stakeholder behavior dynamics, identifying how credible commitment, participatory signaling, and iterative negotiation can shift outcomes from conflict to cooperation.