Climate change is a critical global issue with profound local impacts. Recent scholarship on local government action to address climate change has primarily focused on cities, with less attention paid to how smaller municipalities and rural communities are tackling the issue. Our research investigates how the capacity of urban and rural municipalities in New York State (NYS) affects their ability to take climate action, utilizing data from a statewide survey, interviews, and secondary data on municipal participation in the NYS Climate Smart Communities program. We investigated how municipal capacity (including individual, management, and broader contextual factors) influences climate change action in rural and urban communities. We find that only a quarter of NYS municipalities have taken climate action, and most are mitigation rather than adaptation actions. There is significantly more climate action and municipal climate network participation in urban versus rural communities. Most local municipal officials believe that climate change is occurring and feel the impacts, yet most are unsure about addressing it at the local level. Climate action is best predicted by individual municipal capacity variables of strong climate beliefs and knowledge, and contextual variables of being in an urban municipality versus a rural one, and participation in climate networks. Key barriers to local climate action include the lack of human, financial, and technical resource capacity. Municipal climate networks can help overcome capacity limitations, particularly for resource‐limited rural communities.