The essence of local government system as one of the tiers of governments in Nigeria is predicated on the need to bring government closer to the populace at the grassroots, so as to promote their participation in governance and ensure rural development. However, the study critically reflects on the impact of local government in service delivery as well as addressing the pitfalls that have, over the years, shrunk the ability to achieve rural development among the rural dwellers. In holistic terms, it exposes the challenges that negate the attainment of rural development in various local governments in Nigeria. The study adopts secondary data, which were presented in textual form. Thus, descriptive and deductive logic was used as method of data analysis. Using System theory as a framework of analysis, the study discovered the factors that hinder the optimal performance of local government system towards attainment of rural development, namely: corruption, lack of autonomy, paucity of fund, non-periodic elections; conflict of inter-governmental relations, over-bloated workforce, high levels of partisanship, and joint-account syndrome. In addressing these pitfalls in local government system in Nigeria, the study recommends strong institutional building to fight corrupt practices in the local government system; granting of full financial autonomy; adequate funding as well as increment in the IGR’s baseline of local government system; periodic elections as democratic principle; non-determination of the structure, finance, composition and function of local government by the state governments; right-sizing of redundant staff; insulation of the local government system from partisanship, among others.