The exposure of urban populations to flooding is highly heterogeneous, with the negative impacts of flooding experienced disproportionately by the poor. In developing countries experiencing rapid urbanization and population growth a key distinction in the urban landscape is between planned development and unplanned, informal development, which often occurs on marginal, flood-prone land. Flood risk management in the context of informality is challenging, and may exacerbate existing social inequalities and entrench poverty. Here, we adapt an existing socio-hydrological model of human-flood interactions to account for a stratified urban society consisting of planned and informal settlements. In the first instance, we use the model to construct four system archetypes based on idealized scenarios of risk reduction and disaster recovery. We then perform a sensitivity analysis to examine the relative importance of the differential values of vulnerability, risk-aversion, and flood awareness in determining the relationship between flood risk management and social inequality. The model results suggest that reducing the vulnerability of informal communities to flooding plays an important role in reducing social inequality and enabling sustainable economic growth, even when the exposure to the flood hazard remains high. Conversely, our model shows that increasing risk aversion may accelerate the decline of informal communities by suppressing economic growth. On this basis, we argue for urban flood risk management which is rooted in pro-poor urban governance and planning agendas which recognize the legitimacy and permanence of informal communities in cities.