This paper examines some processes behind the creation of place identity and place attachment using a broad theoretical framework. The framework is structured around the creation of space and place, followed by theories and models on how places are given identity and finally some possible effects of place identity. These theories are then used to examine place identity formation among residents and real estate agents in Hammarby Sjöstad, a newly developed urban residential area in Stockholm, Sweden. A total of 5 in depth interviews were carried out with local residents in different parts of the residential area, as well as 3 in depth interviews with real estate agents active in different parts of the area. The interviews were transcribed and analysed in relation to the theoretical framework as well as documents relating to the planning of the area. The study shows that there has formed a local identity in Hammarby Sjöstad, not defined by the administrative borders of the area. The perceived extent of the area most probably stem from that the lake Hammarby Sjö acts as a physical barrier between the area and the rest of the inner city. This might be the reason to the evolution of a defined perceived community there. The effects of this could be a contributing factor in the segregation that is evident in urban areas, which calls for attention to the possible effects of place identity in urban planning.