This is a continuation of the Science Fiction / Fantasy Genre Glossary Project posts. For the complete genre index click here.
What is urban fantasy?
A subgenre of fantasy that blends mythological / magical elements with a contemporary city or town setting. Urban fantasy often overlaps with stories that can also fall under the paranormal subgenre. However, urban fantasy does not require the inclusion of paranormal elements such as ghosts, or psychic phenomenon.
Examples:
The Newford Series by Charles De Lint
The Dresden Files by Jim Butcher
The Magicians by Lev Grossman
I haven't read much in this genre. Do you have any favorites or recommendations?

Havn't read much in it, yet, but it appears to be an increasingly popular genre these days...
Yes it seems to be everywhere!
How about The City of Ember? Was that Urban Fantasy?
I haven't read it, but at a glance it looks like its likely!
It's actually not that great a book. The movie was kinda better (heinous perfidy for a writer to say, I know). The book was really slow-moving. If I were to recommend a Jeanne DuPrau book, definitely read The Diamond of Darkhold. It was pretty good.
Post-apocolyptic YA? hmm interesting. I've really got to start a to-read list.
Laura Miller had a great article in the Summer Fiction issue of The New Yorker running down various entries in dystopian YA. I highly recommend it if you're building a list.
Actually... on the long-version of my to-read list. I've read positive reviews, myself... positive enough that I'm at least intrigued. Did see (and enjoy) the movie.
Wasn't the movie awesome! :-) They should make one out of #4.
And no, Ms. DuPrau did not hire me to advertise. :-)
This is the funniest of the sub-genres. Everyone has wanted to write it since the dawn of literature. "Can we just put the awesome things in my yard?" In fact we have been experiencing it since the dawn of imagination; all those games on playgrounds.
My aunt is a Hard Scifi reader. She subscribes to science journals and doesn't like any other kind of speculative fiction - except Urban Fantasy. It possesses a unique escapist quality, because it dumps the elves, magic swords, witches and whatnot nextdoor. No stretching the brain to comprehend an alien world. Just imagine crazy stuff here. Like zombies, it's easy to comprehend why it would catch on. It brings the fantastic to every corner of the world we really live in.
Wouldn't Twilight be the high holy king (sales- and market penetration-wise, anyway) of Urban Fantasy?
It sure is fun, and you're right. There's something primal about it. Just thinking as I write here, but urban fantasy seems to tap into the the same vein as of mythology and legends. Is this the evolution of mythmaking? Monster stories have been around forever, they're both comfortingly familiar, but it is also that familiarity that makes it insidious, seep into your bones, haunt your days.
Twilight. Ahh, I do think it was a game changer in terms of what publishers are buying these days. I have read it.
And thanks for the recommendation above too.