The growing emphasis on affordable housing and the increase in its supply in Indian cities is characterized by two features that diminish the integrative role of affordable urban housing. The first is the move toward constructing new housing stock rather than upgrading the existing stock. Second, most of this new housing, increasingly in the form of multi-storied tenement buildings, is located on urban peripheries in isolated or poorly connected sites. In focusing on the peripheralization of formal low-income housing, this paper adds a new dimension to studies of peripheral urbanization in India, which have hitherto focused on high-end speculative developments or informal settlements of the poor. Drawing on mixed-method field studies of four formal low-income settlements in Ahmedabad and Chennai, this paper argues that their residents experience a multifaceted dynamic of disconnection from the city and from other peripheral developments, rendering them outsiders in the periphery. Three dynamics of disconnection are studied: first, the allocation of fully built housing disconnects residents from processes of housing production. Second, spatial dislocation constrains their physical and socioeconomic mobility. Third, these dynamics combined with substandard infrastructural conditions alienate residents from the settlements and curtail their engagement in processes of place-making or the production of neighborhoods.