This article analyses the prevailing types of interaction between two important actors, namely, Danish municipalities and the EU-funded LEADER Local Action Groups (LAGs), in a qualitative case study of LAG-Djursland. In addition, parallels are drawn to the national implementation of the programme through a quantitative study. The analysis addresses interaction at the policy-making (board) level, the operational (staff) level and the implementation (project) level and employs inter-organizational theory. The analysis concludes that at LAG-Djursland, the policy-making level has the least integrated mode of interaction with the municipalities, followed by the operational level, and the implementation level is the most integrated. However, the analysis indicates that the operational level is most important for achieving the objective of delivering rural development. The study shows that the municipalities are valuable partners in fulfilling the LAG objectives; however, it is difficult to define the inflection point at which municipalities become too dominant and come into conflict with the rationale behind the LEADER approach to self-governance in LAG partnerships.