Abstract Policy development and implementation should be fundamental for community psychologists in their endeavors to create social change. Policy necessarily is engaged at broad social and political levels, but it is mediated through communities and individuals, and thus appealing for our discipline. We argue that there are increasing opportunities for social input in liberal democracies with the growing awareness of the need to consider social factors in policy. Public participation is one aspect of policy development, but it can be problematic and can disempowered communities, especially disadvantaged communities. Using the framework of the ‘third position’, a case study of attempts to ameliorate institutional oppression of Australian Aboriginal people through policy change is described. Structural reform to community engagement is described in terms of empowerment and capacity building. Power relationships are deconstructed to allow understandings of the dynamics of policy change, and the broader implications for community psychological praxis are discussed.