Globally, tens of millions of forcibly displaced people live in informal urban neighbourhoods. Although critical sites for humanitarian and development intervention, municipal authorities may have only a limited presence. Especially in conflict and post‐conflict settings, other non‐state actors emerge to compete for public authority. While the localisation agenda of international donors seeks to better engage local governance actors, little is known about how aid donors take account of non‐state public authority actors as they seek to achieve stability, state building, security and refugee resilience objectives. Accordingly, this study adopts a qualitative methodology to analyse how, why and to what effect donors conceive of and seek to address the legitimacy of state and non‐state urban public authority actors in their response to urban displacement. Analysis of the Syrian refugee crisis in Jordan and Lebanon shows that municipalities remain the focus, as donors hold three key assumptions that inform their interventions. Adopting sophisticated tools for understanding non‐state actors' pursuit of public authority, donor interventions seek to undergird, shift, work around, blank or ban their legitimacy‐making practices. We conclude that while donors embrace empirical legitimacy approaches, development and humanitarian responses to urban protracted displacement in marginal urban neighbourhoods are restricted by powerful normative legitimacy approaches rooted in foreign policy objectives.