(FORTUNE Small Business) – For nearly 20 years, Martha Bear Quiver dreamed of owning a home on the Northern Cheyenne Indian Reservation in Montana, but she was repeatedly turned down for a mortgage because she couldn't make the down payment. She had almost given up when a band of volunteers showed up to help her build a four-bedroom, two-bath home. The construction took less than three weeks.

Martha's house wasn't built by elves but by Red Feather Development Group, a nonprofit organization founded by an entrepreneur named Robert Young to help improve living conditions on Native American reservations. In 1993, Young, then 32, was co-founder and partner in Seattle-based Pogo & Co., a clothing company specializing in sportswear. But a routine business trip to Taos, N.M., changed his life. Young saw an article in the Indian Times newspaper that described the abject poverty in which so many Native Americans lived. Through an adopt-a-grandparent program, Young began corresponding with Katherine Red Feather, a 75-year-old woman from the Lakota tribe in South Dakota. "If you're ever in this area, I'd love to meet you," she wrote. "I don't have a nice house, but you're welcome to stay here."

When Young visited her reservation a few months later, he couldn't believe what he saw. "They lived in Third World conditions," he says. "About 40% of the population didn't have water or electricity." Red Feather lived in an abandoned car trailer. A 2003 report by the U.S. Census Bureau found that Native Americans have the lowest median income of any racial group in the country and the highest percentage of population below the poverty line.

Back in Seattle, Young decided to do something about it. Starting with a donation from Pearl Jam guitarist Stone Gossard, Young raised enough money for materials. Then he and some volunteers, most with no construction experience, spent two weeks in South Dakota turning a frame-house kit into a two-bedroom, one-bath home for Red Feather. "It was more physical work than I'd ever done," recalls Young. "My hands were so sore I could barely eat, but I knew we were doing something invaluable."

Once the house was completed, Young set up a nonprofit, the Red Feather Development Group, and two years later he left the clothing business to work on Native American issues full-time. (Pogo & Co. is no longer in business; the other owner sold out several years ago.)

Red Feather is based in Bozeman, Mont., and its tiny staff of five, along with a host of volunteers, have built 46 homes. The bulk of its $500,000 annual budget comes from private donations, foundations, and corporate grants. "We're not a giveaway program; we're an empowerment program," says Young. "We help families acquire a low-income, low- or no-interest loan for materials, and we work with them on the construction." The typical two-bedroom, one-bath starter house costs $45,000 to $50,000. Today the nonprofit constructs them using straw bales, which are inexpensive and provide great insulation, drastically reducing heating costs. The straw walls are covered with stucco so the finished product looks similar to a regular house. This fall Red Feather will teach the straw-bale technique to Habitat for Humanity.

As for Katherine Red Feather, she is now 85 and still living in the house Young and his friends built for her ten years ago. Similarly, Martha Bear Quiver, in Montana, has been in her new home since 2003.