This paper aims to provide insights that can inform policy responses seeking to minimise coastal hazards impacts on vulnerable communities through improved adaptive capacity. It focuses on the Brazilian coastal island of Ilha Comprida, São Paulo State, and is informed by 39 qualitative semi-structured interviews with residents, visitors, government personnel and experts. Interviews investigated people’s understanding of and responses to climate and environmental risks, including coastal erosion processes and sea level rise. Findings are discussed from two perspectives of risk understanding: risk as a social construction and calculated risk. In particular, the paper shows how people’s perception of and relationship with the environment determine their risk understanding, and influence the individual and/or collective actions that are employed to deal with existing environmental risks. It also discusses issues related to limited integration between institutional actors responsible for environmental governance in terms of risk analysis and communication, and risk management. The paper concludes by offering insights for advancing locally-based climate change adaptation in vulnerable urbanised coastal areas through improved risk understanding. Insights are particularly relevant to other developing countries with vulnerable coastal settlements.