The contribution of the micro, small, and medium enterprises (MSME) sector towards sustainable urban development is well known. Impact investment can be a significant funding source for MSMEs. This paper focuses on highlighting the role and significance of MSMEs in sustainable development in urban India. The study dwells on the need for impact investing and opportunities for the same in MSMEs contributing towards urban sustainability. The present study also aimed at identifying the significant challenges coming in the way of impact investing in these MSMEs and tries to focus on roles various stakeholders can play in overcoming these challenges. This is an exploratory study relying on secondary sources of data, such as articles published in academic journals, various newspapers, and book chapters, and performs a comprehensive analysis of existing studies. The impact investing in the MSME sector in India can significantly contribute to the urban sustainability by acting as a savior for MSMEs by ensuring their revival and continued existence by providing financial and non-financial support. It was concluded that the impact investing in MSME offers more opportunities for transformational changes, ensuring sustainable development in urban India, considering MSMEs contribution towards employment generation, health care, water and sanitation value chain, and waste management.