This article examines a dispute between a French missionary hospital and Ottoman state officials over water and cultivated fields in Şişli, a periphery of Istanbul. It uses micro-history to illuminate the spatial and material implications of extraterritoriality and to reveal the role this legal privilege played in the urbanization of Ottoman cities. While European residents within Ottoman territory conceived of extraterritoriality as allowing geographic enclaves, Ottoman authorities resisted the legal fragmentation of the city and considered that all natural resources remained under the sultan’s sovereignty. These diverging understandings of extraterritoriality, in the context of asymmetric relations between European powers and the Ottoman empire, framed an urban dispute that resulted in sanitation reforms, the construction of walled enclosures, and negotiations to clarify the property rights of foreigners. In the process, Şişli became incorporated as an urbanized neighborhood of Istanbul.