An 850-square-foot apartment divided by two kids plus two cats plus two adults. Sounds like insanity, but for years it was the secret formula for our family’s happiness. Sure, space is a common whine in Manhattan: Who ever thinks he has enough? But for a generation of couples whose breeding years coincided with the run-up in real-estate values, city life has spawned a level of physical ingenuity and social flexibility rarely seen beyond the Tokyo city limits.

I wish our elbow-room problem were merely a matter of money. For us, the big mistake in life was finding the home of our dreams early on. Sure, we could have traded up in the boroughs or the ’burbs, but we’d become attached to our apartment, our building, and our neighborhood. The choice came down to location or comfort; we chose to make the most of the 140 square feet allotted to each of us.

Luckily, we hadn’t become too attached to our furniture—or a decorating style. At each developmental milestone, we would shuffle and discard furniture to create the right mix of function and comfort. Our apartment began with an eclectic rustic theme—French-country in one room, mission in the other—and ended with a spaceship feel: lots of sleek multipurpose surfaces concealing ingenious blocks of storage.

The first baby was relatively easy to accommodate: Without a nursery to decorate, we concentrated on providing a low-impact infancy. That meant bringing her home in a basket and keeping her there. Changing tables, gliders, cribs—we didn’t miss any of them. Wee ones are easily changed on a bed or a table, especially with one of those concave foam-rubber pads that moves to any stable surface. When we weren’t performing parental duties, almost all the baby gear slipped into closets and out of sight.

The fantasy of keeping our old life (with only a few modifications) confronted reality about the time our daughter started walking. Her early unsteady steps compelled us to sacrifice the sharp-edged glass coffee table. Other pieces of frilly, delicate, or difficult-to-clean furniture were torpedoed by sloppy eating habits and rambunctious play dates. Finally, with only a few sticks left, we got down to some serious renovating. If we were going to stay put and keep our sanity, we had to start from scratch and think about creating an apartment with yachtlike compactness and Zen-like flexibility.

It was easier than I would have thought. Fold a few functions into the same location and you get a surprisingly big apartment out of the same small space. The dining room became a library–dining room–home office, the kitchen an all-purpose laboratory for feeding and hygiene. Built-in cabinets, built-out closets, and a sliding glass panel turned our bedroom into two sleeping chambers without losing the morning light. Modern furniture looks better sparser, and that made it easier to turn the living room into a wide-open stretch of tightly woven carpeting. A big, modern dining table, a long, low couch, a bench, and a chair could be configured any number of ways: kids’ birthday parties, nanny get-togethers, Sunday mornings lounging with the papers, even dinners to keep our conversational muscles from atrophying.

As easy as it was to find ways to get more out of the limited space we had, none of these arrangements would have worked in another city. Simply put, you can live in New York like you’re aboard a ship, but that’s only because there are so many other places to go on shore leave. The claustrophobia in our cramped submarine of an apartment would have put us under without the plethora of pedestrian diversions just blocks away—numerous playgrounds for variety; coffee shops for breakfast, lunch, and dinner; bookstores where the strollers are lined up three-deep; not to mention that emergency mood-elevator, the pet shop.

If we weren’t living in New York, it wouldn’t be worth putting up with all these compromises. In another city, we might have a room dedicated to each domestic pursuit, a sort of homebody imperialism that would seem small compensation for the loss of urban vitality. For us, less just added up to more. You might even say we divided to conquer the city.