With cities growing rapidly throughout much of the developing world, the global development community increasingly recognizes the need to build the capacities of local leaders to analyze and apply data to improve urban policymaking and service delivery. Civil society leaders, development advocates, and local governments are calling for an “urban data revolution” to accompany the new UN Sustainable Development Goals (SDGs), a revolution that would provide city leaders new tools and resources for data-driven governance. The need for improved data and analytic capacity in rapidly growing cities is clear, as is the exponential increase in the volume and types of data available for policymaking. However, the institutional arrangements that will allow city leaders to use data effectively remain incompletely theorized and poorly articulated. This paper begins to fill that gap with a political economy framework that introduces three new concepts: permission, incentive, and institutionalization. We argue that without addressing the permission constraints and competing incentives that local government officials face in using data, investments in improved data collection at the local level will fail to achieve smarter urban policies. Granting permission and aligning incentives are also necessary to institutionalize data-driven governance at the local level and create a culture of evidence-based decisionmaking that outlives individual political administrations. Lastly, we suggest how the SDGs could support a truly transformative urban data revolution in which city leaders are empowered and incentivized to use data to drive decisionmaking for sustainable development.