Obesity and inadequate physical activity are major risk factors for many diseases. The built environment plays an important role in influencing participation in physical activity. We aimed to determine whether urban sprawl in Sydney, Australia is associated with overweight/obesity and levels of physical activity. We used a cross-sectional multilevel study design to relate urban sprawl (based on population density) measured at an area level to overweight/obesity and levels of physical activity measured at an individual level whilst controlling for individual and area level covariates in metropolitan Sydney. Individual level data were obtained from the 2002 and 2003 New South Wales Population Health Survey. We had information on 7,290 respondents. The mean population density was 2,168 persons per square kilometer (standard deviation=1,741, range=218-7,045). After controlling for individual and area level covariates, for an inter-quartile increase in sprawl, the odds of being overweight was 1.26 (95% CI=1.10-1.44), the odds of being obese was 1.47 (95% CI=1.24-1.75), the odds of inadequate physical activity was 1.38 (95% CI=1.21-1.57), and the odds of not spending any time walking during the past week was 1.58 (95% CI=1.28-1.93). Living in more sprawling suburbs increases the risk of overweight/obesity and inadequate physical activity despite the relatively low levels of urban sprawl in metropolitan Sydney. Modifications to the urban environment to increase physical activity may be worthwhile.