A sustainable neighborhood is a form of real traditional neighborhood, which meets those same needs for housing, work places, shopping, civic functions but in format that are compact, complete and connected, and ultimately more sustainable and satisfying. This paper identify the problems and the conflicting interests, defines the key terms of the sustainability, exposes the whole concept of neighborhood and examines unsustainability of current development trends. In this paper effort has been made to develop theories and principles of neighborhood planning, systematically reviews the reasons for wanting neighborhoods, drawing on social arguments to do with health and community as well as environmental arguments. These principles serve as indicators to sustainable development; they should be used to define inherent qualities, carrying capacities and required ecological footprints of place.