In October 1993, the students at Arizona State University (ASU) were challenged by Orbital Sciences Corporation to develop a 4.5-kg (10-lb) satellite (ASUSat1) to be launched as a piggyback payload on a Pegasus rocket. The challenge included the requirements for the satellite to perform meaningful science and to fit inside the Pegasus avionics section (0.033 m diam. X 0.027 m). Moreover, the students were faced with the cost constraints associated with university projects. This unusual set of requirements resulted in a design and development process, which is fundamentally different from that of traditional space projects. The spacecraft capabilities and scientific mission evolved in an extremely rigid environment where cost, size and weight limits were set before the design process even started. In the ASUSat1 project, severe constraints were determined first, and then a meaningful scientific mission was chosen to fit those constraints. This design philosophy can be applied to future satellite systems. In addition, the ASUSat1 program demonstrates that universities can provide an open-minded source for the innovative nano-spacecraft technologies required for the next generation of low-cost missions, as well as an economical testbed to evaluate those technologies. At the same time, the program provides hands-on training for the space scientists and engineers of the future.