(FORTUNE Small Business) – Summerhaven, Ariz.--On a June morning in 2003, Bob Zimmerman watched a monster forest fire engulf the Arizona mountain village where he had spent most of his life. The fire rumbled along an eight-mile front, spawning purplish lightning storms and hitting temperatures of 1,800 degrees Fahrenheit, hot enough to melt aluminum. As he stood at the end of his dusty driveway, squinting to see through the smoke and glare, Zimmerman felt sick and seared.

The rest of Summerhaven's 100-odd inhabitants had already left town. "I knew we were in a lot of trouble," says the stocky, silver-haired Zimmerman, 68. "For a moment, I thought about staying." But in the end his saner side won out and he feld, leaving Summerhaven to burn.

The former Vietnam fighter pilot returned a month later to a desolation of blackened trees, charred cabins and automobiles, even a melted Jacuzzi. More than half of the houses in town had been obliterated, including several belonging to Zimmerman. His coffee shop also burned, as did six of the other ten small businesses along the town's single commercial strip. The property-damage bill would eventually total between $32 million and $40 million.

Like the other townspeople, Zimmerman mourned what had been lost. But he was also struck by the idea that he might actually capitalize on the catastrophe. As other residents chased insurance payouts and argued about how and even whether to rebuild Summerhaven, Zimmerman had his own ideas percolating. Deep down, in fact, he might have been preparing for this moment all his life.

For the past 33 years Zimmerman had been buying up property in this little resort town tucked neatly in the Coronado National Forest. By 2003 he owned fully half the commercial-zoned land in Summerhaven: six contiguous acres of prime real estate on both sides of the main drag. Over the next six to eight years, Zimmerman hopes to create a full-fledged mountain resort on the property. "I'd been buying land for a long time, but an idea like this wouldn't have been possible without the fire," he says, sounding slightly messianic.

To get to Summerhaven, you start in Tucson and climb 30 steep, winding miles northeast through an arid landscape of towering rock formations, cactus, and pine. It's a one-hour drive that will dwindle to around 30 minutes once the state finishes improving the only road. Near the crown of Mount Lemmon, Summerhaven sits at an elevation of almost 8,000 feet and is usually around 30 degrees cooler than Tucson. The town is surrounded by miles of verdant hiking trails, cool streams, and woods full of deer, black bear, and mountain lions. Guidebooks and tourist brochures tend to describe Summerhaven as an "island in the sky." But right now the town still feels like a hideout, a place where outlaws might once have retreated from the law.

Zimmerman's development plan is called the Summerhaven Restoration Project, but Zimmerman's real goal is to reinvent the town from scratch. His vision is nothing if not sweeping. Building by building, he plans to correct what he describes as a business district stifled by "mediocrity." Before the fire Summerhaven's business district was, according to Zimmerman, a grim expanse of empty lots and old, rickety shops. So far Zimmerman has raised $5 million in private financing out of a projected $10 million budget to build two new hotels, several restaurants, a spa for sybarites, and shops to feed any consumer appetite.

If he builds it, Zimmerman reasons, tourists will come to Summerhaven as never before, drawn by nearby ski slopes in winter and hiking and bird watching in the summer. Property values will soar. And local business owners will cash in. Zimmerman figures that he alone could rake in as much as $12 million in annual revenues from the new resort.

Like many an ambitious developer before him, Zimmerman faced doubt and dissent from the outset. Other business owners worried that the new development would attract too many competitors. Before the fire, most local merchants made just enough money to stay afloat and maybe, just maybe, put a little money away at the end of the year. Doubling the number of businesses in town struck some of them as a threat, not an opportunity. "I certainly didn't want another general store in here," says Carol Mack, owner of the Mount Lemmon General Store, a two-story establishment near the southern end of the strip that was rebuilt after the fire at a cost exceeding Mack's insurance payout.

Then there was the Mount Lemmon Community Association, a large, outspoken faction of local homeowners who feared that Zimmerman was secretly plotting to turn their quaint mountain town into a high-country version of Disney World. "I don't like change," observes Debbie Fagan, a local resident who owns a gift shop called the Living Rainbow. "I liked the way Summerhaven was before." (Fagan's shop, located just beyond the proposed resort area, was destroyed in the fire. She recently reopened.)

"It was a controversial idea," admits Mark Frederickson, a professor of landscape architecture at the University of Arizona who helped Zimmerman conceive the plan. "We had to align some very different interests, from the cabin owners to the business owners to the 750,000 [annual] visitors from Tucson."

If everything goes according to his plan, Zimmerman will emerge as the creator of an entirely new Summerhaven. As one person quipped with perhaps a twinge of trepidation, "Why don't we just rename the place Zimmermanville?" But does Zimmerman's grand scheme really make commercial sense? What if all his buildings go up and nobody comes? Which raises the question: Has Zimmerman totally lost his marbles?

Late last Summer Zimmerman stood on the porch of Mount Lemmon Realty, once his late father's one-bedroom cabin and now the capital of his little kingdom. From there he had a clear view of the main drag and project site, which at that point was mostly a wasteland except for the post office, Carol Mack's new General Store, and the Mount Lemmon Café, whose front window carried a hand-lettered sign advertising homemade pies. Thirty or so new cabins were sprouting from the scorched hillsides. Busy construction workers hauled off charred tree trunks, tangled metal, and busted-up concrete from old foundations.

Nearly two years after the great fire finally burned itself out, the air in Summerhaven still smells faintly of smoke. Hardhats often outnumber residents and tourists. But prices of two-bedroom cabins in this one-square-mile village are up 20% from 2003 and are selling briskly, according to Zimmerman. Scarcity is one reason: There are only 350 acres of buildable land in Summerhaven. Many buyers find modern construction more appealing than the old cabins that constituted the principal housing stock before the fire. And the fire actually improved many building sites by clearing overgrown brush and trees that once blocked natural light. "Believe it or not, it's better than ever around here," Zimmerman crows.

Zimmerman may be a developer with big ideas, but he bears no physical resemblance to Donald Trump. At 68, he's a short, grandfatherly man with impeccably combed white hair and a penchant for khakis and checkered button-down shirts. He works with his wife, Fran, in an ancient log cabin decorated with cowboy hats, portraits of his father, and numerous pictures of fighter jets. He is soft-spoken until the conversation turns to the rezoning and rebuilding of Summerhaven, when he turns fierce and lives up to his nickname, Scrappy. "People say that I've always been trying to take over the town," he says. "But I just laugh."

In his youth, Zimmerman served ten years in the Air Force. He flew dozens of F-4 Phantom fighter missions during a scary tour of duty in Vietnam, dropping napalm and high explosives. After Vietnam, Zimmerman left the Air Force and spent a couple of years as a lonely, overworked traveling salesman for a Cleveland-based aluminum company. When he finally returned to Summerhaven in the early 1970s, he bought out his father's real estate business. At the time, that included Mount Lemmon Realty, the dilapidated, 12-room Mount Lemmon Inn, a sawmill, and the local post office. "He was on a mission from the start," says John Jones, a former county zoning official who now works for Zimmerman as a project manager.

As Zimmerman remembers it, the urge to take over the town goes back to a childhood incident in which he watched a rival hotel's owner punch his father in the face. The man had accused Tony Zimmerman of encouraging the town snowplower to push all the snow in front of his hotel, making it impossible for people to come and go.

"The town has been full of divisions over the years like that, lots of fights," says Zimmerman, who claims that his father's rival was wrong and crazy. "I wanted to own everything so I could unite the town. If I owned everything, there would be no problems."

At times like this, Zimmerman comes across as just a little bit obsessive. He is a unique figure in Summerhaven, roaring around in an enormous SUV with blacked-out windows. He typically keeps his head down when he ventures out on foot, greeting nobody unless they address him first. Indeed, an armchair psychiatrist might conclude that buying up the town is in part Zimmerman's way of avenging an old insult to his dad. Whatever the case, Zimmerman picked up nine additional properties during his first five years back in Summerhaven. "There were plenty of owners I got rid of," he laughs. "I didn't even have to shoot them." This is Zimmerman's distinctive way of saying that he bought most of his property from people who had died or left town.

The buying spree put Zimmerman in debt and forced him to plow snow, ironically enough, for extra money. (Although he doesn't need the money anymore, Zimmerman still plows for fun every winter, driving a rusted-out Suburban that he acquired in a real estate deal.) In 1977 a fire obliterated the Mount Lemmon Inn. Zimmerman couldn't afford to rebuild because the building was not insured. Vandals burned down the post office. Undeterred, he sold the sawmill in the early 1980s, bought three more contiguous properties, and started to think about building his own tourist resort.

But the county rejected his first commercial-zoning application. "I didn't really have a clear vision of what I wanted to do with everything," he explains. "And my father thought I was going to bring down the business he built."

As a result most of Zimmerman's downtown property languished. And he was just barely staying afloat on his modest revenues from the real estate brokerage. "There was a time when I thought, Forget it, we'll just sell everything off and leave," he says. That feeling persisted on and off until the Aspen Fire, named for a trailhead near town where a careless hiker is thought to have started the blaze by dropping a lit cigarette.

And then everything changed. "After the fire, zoning wasn't a big issue anymore," says John Jones, who was originally hired by Pima County to act as a liaison with Summerhaven on reconstruction and zoning issues. There was a general consensus that the town had to be remade and fast. The county ponied up $8.2 million for the rebuilding effort, a small portion of which was earmarked for Zimmerman's development. "There were so many possibilities out there that you could drown," Jones continues. "It was endless really. To an extent, I think we're still in our honeymoon period."

But not everyone shared that rosy view of the project. "Very few people knew what was going on," says Michael Lefton, a senior member of the Mount Lemmon Community Association. "The downtown restoration project and the zoning changes were being pushed down the majority of our throats."

In March 2004 the Leftons and a number of other families requested a meeting to review Zimmerman's project, which he had been pitching to investors all winter and spring. In a survey that was taken that night, 87% of the residents at the meeting expressed concern about Zimmerman's redevelopment plan. The general worry was that the town would be "overdeveloped" or "Disneyfied." Zimmerman shrugs off the criticism. "The ones that had doubts didn't understand what was going on," he says, a little defensively.

Even so, the town hired a mediator. As part of the eventual settlement between Zimmerman and his opponents, Zimmerman dropped a couple of acres from his plan. As a further concession, he agreed to a strict building code that prescribed fire-resistant roofs, nonreflective glass, and natural materials such as stone and wood. Lefton describes the concessions as "democracy at work."

The convention center and Alpine Lodge will be the first of 12 new buildings in Zimmerman's plan, with ground likely to be broken this spring. The lodge replaces an earlier hotel--not owned by Zimmerman--that was destroyed in the fire. It will feature 54 well-appointed rooms, guest cabins, a spa, a restaurant, and a bar. After that, new building will proceed in phases, depending on demand and the availability of capital.

While the old Alpine grossed roughly $450,000 in 2002, Zimmerman expects the new lodge to bring in twice that amount. His marketing plan includes a print- and broadcast-advertising campaign that presents the new resort as an attractive destination for overnight visitors.

If Zimmerman's resort prospers, other businesses in town will probably benefit as well. That's why even some skeptics are rooting for him to succeed. "It would be great to create something that would draw more people up here," says Mack. "If Bob succeeds, then we all do."

If he flops, Zimmerman will have spent $10 million of his investors' money to create a ghost town with too many stores and too few people. But as he looks out over the charred remains of Summerhaven, Zimmerman is undeterred by the high stakes of his project. "I don't have a huge opinion of myself," he says with no discernible irony. "In the scheme of things, this is a very small pond. But I guess I am a big fish in the small pond, which is something I wouldn't be anywhere else."