In Indian cities, informal ‘slum’ settlements have long been targeted for removal as an environmental improvement strategy, despite their relatively low impact. Slum clearance has escalated with the combination of speculative development and environmental change, creating uneven precarity throughout Mumbai’s neighborhoods. State agents play a direct role in slum evictions, but they do not act unilaterally. Diverse lower‐income and middle‐class residents seeking better living conditions have sometimes converged in their embrace of slum clearances and resettlements that advance elite development interests. In other moments, the dispossessing effects of market‐based and elite‐biased slum rehabilitation have fomented contestation. This article analyzes how differently situated groups emerge as ‘environmental subjects’ that embrace or contest improvement projects. It suggests three dimensions of subject formation: governing logics and discourses of urban environmental improvement, the territorial politics of informality, and differentiated embodied experiences of precarity and dispossession. Environmental subject formation is explored through two interventions that entail slum clearance—mangrove and green space conservation and an urban transport infrastructure project. Findings suggest that the connection between displacement and improvement cannot be explained through theories of environmental gentrification but require attention to the simultaneously inclusive and dispossessing regimes of postcolonial development.