Initial settlement patterns, locational choice between neighbourhoods and mobility behaviour of migrant households in Karachi (a fast-growing city in the Third World) are analysed in this research. A key result of the research is that ethnic considerations are dominating choice of location and are also a major influence on the subsequent mobility of migrant households. Therefore, residential segregation in terms of ethnicity is likely to increase as more migrants come into the city. This may have disastrous spatial consequences in view of the increased ethnic disturbances in the city. The migrant households are also seen to settle mostly in peripheral Katchi Abadis, which is stretching the city outward. Per capita costs of service provision are increasing as a consequence. Locating close to major employment centres is not an important consideration for the migrants but accommodation near workplaces is still preferred. Policies to limit migration and urban sprawl are recommended and should be particularly directed at the new arrivals to the city. The concentration should also be on upgrading existing settlements and making them more accessible.