The rapid diffusion of the Internet has considerable potential for enhancing the way people connect with each other, the root of social capital. However, the more the Internet is used for building social capital the greater will the impact be on those whose access and/or usage is curtailed. It is therefore important to investigate the impacts of Internet on groups at risk of digital and social exclusion. The aim of this article is to examine how the use of the Internet influences social capital and community building in a disadvantaged area. Quantitative and qualitative data from a case study in a suburban area of Stockholm are used to evaluate the social impacts of two community-based Internet projects: a Local Net and an IT-Cafe. Each of the projects was aimed at enhancing digital inclusion and social capital in a disadvantaged local community. The paper examines the extent to which use of the Internet is associated with an enhancement of social participation, social trust and local identity in the area. The Local Net appears to have had limited success in meeting its goals; the IT-Cafe was more successful. Visitors to the IT-Cafe had more local friends, expressed less social distrust, perceived less tension between different groups in the area and felt a much stronger sense of local identity than non-visitors. Visitors praised the IT-Cafe as providing a meeting-place both online and offline. The Internet was used for networking, exchange of support and information seeking. Although it is difficult to establish causal priorities, the evidence suggests that an IT-Cafe, combining physical with virtual and the local with the global, may be especially well suited to build social capital and a sense of local community in a disadvantaged area. The importance of social, rather than solely technological, factors in determining the impact of the Internet on social capital and community in marginal areas is stressed.