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                                                                    EXHIBIT 10.7

                        FOCAL COMMUNICATIONS CORPORATION
                                        
                      1997 NONQUALIFIED STOCK OPTION PLAN
                      -----------------------------------

                  AMENDED AND RESTATED AS OF AUGUST 21, 1998

                                   ARTICLE I

                                Purpose of Plan
                                ---------------

The 1997 Stock Option Plan (the "Plan") of Focal Communications Corporation (the
"Company"), adopted by the Board of Directors of the Company on February 27,
1997, for executive and other key employees and directors of the Company, is
intended to advance the best interests of the Company by providing those persons
who have a substantial responsibility for its management and growth with
additional incentives by allowing them to acquire an ownership interest in the
Company and thereby encouraging them to contribute to the success of the Company
and to remain in its service. The availability and offering of stock options
under the Plan also increases the Company's ability to attract and retain
individuals of exceptional managerial talent upon whom, in large measure, the
sustained progress, growth and profitability of the Company depends.

                                   ARTICLE II

                                  Definitions
                                  -----------

          For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:

          "Board" shall mean the Board of Directors of the Company.

          "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.

          "Common Stock" shall mean the Company's Class A Common Stock, par
value $.01 per share, or if the outstanding Common Stock is hereafter changed
into or exchanged for different stock or securities of the Company, such other
stock or securities.

          "Company" shall mean Focal Communications Corporation, a Delaware
corporation, and (except to the extent the context requires otherwise) any
subsidiary corporation of Focal Communications Corporation as such term is
defined in Section 425(f) of the Code.

          "Disability" shall mean the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of any Participant to
carry out effectively his duties and obligations to the Company or to
participate effectively and actively in the management of the Company for a
period anticipated to last at least 6 months, as determined by the Board in its
good faith discretion.

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          "Fair Market Value" of the Common Stock shall be the average, over a
period of 21 days consisting of the day as of which Fair Market Value is being
determined and the 20 consecutive business days prior to such day, of the
average of the closing prices of the sales of such Common Stock on all
securities exchanges on which such Common Stock may at that time be listed, or,
if there have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day the Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, ifon any day the Valued Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau Incorporated or any similar successor organization. If at any time the
Common Stock is not listed on any securities exchange or quoted in the NASDAQ
System or the over-the-counter market, the Fair Market Value shall be the fair
value of the Common Stock determined in good faith by the Board.

          "Options" shall have the meaning set forth in Article IV.

          "Participant" shall mean any executive or other key employee or
director of the Company who has been selected to participate in the Plan by the
Board.

          "Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.

          "Change in Control" shall mean the occurrence of any of the following
events:

     (a) The Company is merged or consolidated or reorganized with or into
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;

     (b) The Company sells or otherwise transfers all or substantially all of
its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Stock immediately prior to such sale or
transfer;

     (c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), as promulgated in each case pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in

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Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined in Rule 13d-3
promulgated under the Exchange Act or any successor rule or regulation
promulgated thereunder) of securities representing 50% or more of the Voting
Power; or

     (d) If during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Directors and any new Directors
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the Directors then
still in office who either were Directors at the beginning of the period or
whose election was previously so approved cease for any reason to constitute a
majority of the Directors.

Notwithstanding the provisions of subparagraph (c) above, a "Change in Control"
shall not be deemed to have occurred for the purposes of this Agreement (i)
solely because MDCP either files or becomes obligated to file a report on
Schedule 13D (or any successor schedule or report), as promulgated pursuant to
the Exchange Act, disclosing beneficial ownership by it of securities
representing 50% or more of the Voting Power, (ii) solely because the Company or
any Company-sponsored employee stock ownership plan or other employee benefit
plan of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein), as
promulgated in each case pursuant to the Exchange Act, disclosing beneficial
ownership by it of securities representing 50% or more of the Voting Power or
otherwise, or because the Company reports that a change in control of the
Company has or may have occurred or will or may occur in the future by reason of
such beneficial ownership or (iii) solely because of a change in control of any
subsidiary (as the term "subsidiary" is defined in Section 424(f) of the Code)
of the Company.

          "Director" shall mean a member of the Board.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute.

          "Initial Public Offering" shall mean the initial underwritten offering
of equity securities of the Company to the general public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission pursuant to the Securities Act, provided that neither of the
following shall constitute an Initial Public Offering: (i) any issuance of
Common Stock as consideration or financing for a merger or acquisition or (ii)
any issuance of Common Stock, or rights to acquire Common Stock, to employees of
the Company as part of an incentive or compensation plan.

          "MDCP" shall mean Madison Dearborn Capital Partners, L.P., a Delaware
Limited Partnership.

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          "Securities Act" shall mean the Securities Act of 1933, as amended,
and any successor statute.

          "Voting Power" shall mean, at any time, the votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.

                                  ARTICLE III
                                        
                                 Administration
                                 --------------

          The Plan shall be administered by the Board. Subject to the
limitations of the Plan, the Board shall have the sole and complete authority
to: (i) select Participants, (ii) grant Options (as defined in Article IV below)
to Participants in such forms and amounts as it shall determine, (iii) impose
such limitations, restrictions and conditions upon such Options as it shall deem
appropriate, (iv) interpret the Plan and adopt, amend and rescind administrative
guidelines and other rules and regulations relating to the Plan, (v) correct any
defect or omission or reconcile any inconsistency in the Plan or in any Option
granted hereunder and (vi) make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan. The Board's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company and all other Persons.
All expenses associated with the administration of the Plan shall be borne by
the Company. The Board may, to the extent permissible by law, delegate any of
its authority hereunder to such persons as it deems appropriate.

                                   ARTICLE IV

                         Limitation on Aggregate Shares
                         ------------------------------

          Limitation on Aggregate Shares. The number of shares of Common Stock
with respect to which options may be granted under the Plan (the "Options") and
which may be issued upon the exercise thereof shall not exceed, in the
aggregate, 17,060 shares (the "Share Limit"); provided, however, that (a) upon
the consummation of an Initial Public Offering, the Share Limit shall be
automatically reduced to a number of shares equal to the greater of (i) the
number of shares of Common Stock reserved for issuance in connection with
Options then outstanding under the Plan, or (ii) (x) 17,060, minus (y) the
aggregate number of shares then available, in the aggregate, under the Company's
1998 Equity and Performance Incentive Plan and 1998 Equity Plan for Non-Employee
Directors as provided therein and (b) that the Share Limit and the type and
aggregate number of shares which may be subject to Options shall be subject to
adjustment in accordance with the provisions of paragraph 6.7 below, and
provided further that to the extent any Options expire unexercised or are
canceled, terminated or forfeited in any manner without the issuance of Common
Stock thereunder, or if any Options are exercised and the shares of Common Stock
issued thereunder are repurchased by the Company, such shares shall again be
available under the Plan. The shares of Common Stock available under the Plan
may be either authorized and unissued shares, treasury shares or a combination
thereof, as the Board shall determine."

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                                   ARTICLE V

                                     Awards
                                     ------

     5.1  Options. The Board may grant Options to Participants in accordance
with this Article V.

     5.2  Form of Option. Options granted under this Plan shall be nonqualified
stock options and are not intended to be "incentive stock options" within the
meaning of Section 422A of the Code or any successor provision.

     5.3  Exercise Price. The option exercise price per share of Common Stock
shall be fixed by the Board at not less than 100% of the Fair Market Value of a
share of Common Stock on the date of grant.

     5.4  Exercisability. Options shall be exercisable at such time or times as
the Board shall determine at or subsequent to grant.

     5.5  Payment of Exercise Price. The option exercise price shall be payable
(i) in cash (including check, bank draft, money order or, following the
consummation of the Initial Public Offering, from the proceeds of sale through a
broker on a date satisfactory to the Company of some or all of the shares of
Common Stock to which the exercise relates), (ii) by transfer to the Company of
shares of Common Stock that, at the time of exercise, have been held by the
Participant for at least six months and, by themselves or together with cash,
have a Fair Market Value equal to the option exercise price, or (iii) in the
discretion of the Board, by delivery of a promissory note in accordance with
policies approved by the Board.

     5.6  Terms of Options. The Board shall determine the term of each Option,
which term shall in no event exceed ten years from the date of grant.

                                   ARTICLE VI

                               General Provisions
                               ------------------

     6.1  Conditions and Limitations on Exercise.  Options may be made
exercisable in one or more installments, upon the happening of certain events
(including, without limitation, a Change in Control), upon the passage of a
specified period of time, upon the fulfillment of certain conditions or upon the
achievement by the Company of certain performance goals, as the Board shall
decide at or subsequent to grant.

     6.2  Written Agreement.  Each Option granted hereunder to a Participant
shall be embodied in a written agreement (an "Option Agreement"), which shall be
signed by the Participant and by the President of the Company for and in the
name and on behalf of the Company and shall include such terms and conditions as
the Board shall determine consistent with this Plan, including but not limited
to (i) the right of the Company, and 

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such other Persons as the Board shall designate, to repurchase from each
Participant and his or her transferees all shares of Common Stock issued or
issuable to the Participant on the exercise of an Option in the event of his or
her termination of employment and (ii) holdback and other registration rights
restrictions in the event of a public registration of any equity securities of
the Company.

     6.3  Listing, Registration and Compliance with Laws and Regulations.
Options shall be subject to the requirement that if at any time the Board shall
determine, in its discretion, that the listing, registration or qualification of
the shares subject to the Options upon any securities exchange or under any
state or federal securities or other law or regulation, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of the Options or the issuance
or purchase of shares thereunder, no Options may be granted or exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board. The holders of such Options shall supply the Company
with such certificates, representations and information as the Company shall
request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other Persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Board may at any time impose any limitations upon
the exercise of an Option that, in the Board's discretion, are necessary or
desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities or
otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised, the
Board, may, in its discretion and without the Participant's consent, so reduce
such period on not less than 15 days written notice to the holders thereof.

     6.4  Nontransferability. Options may not be transferred other than by will
or the laws of descent and distribution and, during the lifetime of the
Participant, may be exercised only by such Participant (or his legal guardian or
legal representative). In the event of the death of a Participant, exercise of
Options granted hereunder shall be made only:

     (i) by the executor or administrator of the estate of the deceased
     Participant or the Person or Persons to whom the deceased Participant's
     rights under the Option shall pass by will or the laws of descent and
     distribution; and

     (ii) to the extent that the deceased Participant was entitled thereto at
     the date of his death, unless otherwise provided by the Board in such
     Participant's Option Agreement.

     6.5  Expiration of Options.

     (a) Normal Expiration. In no event shall any Option be exercisable after
the date of expiration thereof (the "Expiration Date"), as determined by the
Board pursuant to 

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paragraph 5.6 above.

     (b) Early Expiration upon Termination of Employment. Except as otherwise
provided by the Board in the Option Agreement, any of a Participant's Options
that were not vested and exercisable on the date of the termination of such
Participant's employment or service as a director shall expire and be forfeited
as of such date, and any of a Participant's Options that were vested and
exercisable on the date of the termination of such Participant's employment or
service as a director shall expire and be forfeited 60 days after the date of
his termination, but in no event after the Expiration Date.

     6.6  Withholding of Taxes.  If the Company shall be required to withhold
any federal, state, local or foreign tax in connection with any exercise of
Options granted under this Plan, the Participant shall pay the tax or make
provisions that are satisfactory to the Company for the payment thereof.
Following the consummation of the Initial Public Offering, a Participant may
elect to satisfy all or any part of any such withholding obligation by
surrendering to the Company a portion of the Option Shares that are issued or
transferred to him upon the exercise of his Options, and the Option Shares so
surrendered by him shall be credited against any such withholding obligation at
the Fair Market Value thereof on the date of exercise.

     6.7  Adjustments.  The Board may make or provide for such adjustments in
the number of shares of Common Stock covered by outstanding Options granted
under this Plan, the option exercise prices applicable to any such Options, and
the kind of shares (including shares of another issuer) or other securities
covered thereby, as the Board may in good faith determine to be equitably
required in order to prevent dilution or enlargement of the rights of
Participants that otherwise would result from (a) any stock dividend, stock
split, combination of shares, recapitalization or other change in the capital
structure of the Company or (b) any merger, consolidation, spin-off, spin-out,
split-off, split-up, reorganization, partial or complete liquidation or other
distribution of assets or any other corporate transaction or event having an
effect similar to any of the foregoing, provided that the issuance by the
Company of shares of stock of any class, or options or securities exercisable or
convertible into shares of stock of any class, for cash or property or labor or
services, upon direct sale, or upon the exercise of rights or warrants to
subscribe therefor, or upon the exercise or conversion of other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock then subject to any Options.
In the event of any such transaction or event, the Board may provide in
substitution for any or all outstanding Options under this Plan such alternative
consideration as the Board may in good faith determine to be equitable under the
circumstances and may require in connection therewith the surrender of all
Options so replaced. On or after the date of grant of any Options under this
Plan, the Board may provide in the Option Agreement that the holder of the
Options may elect to receive equivalent Options in respect of securities of the
surviving entity of any merger, consolidation or other transaction or event
having a similar effect, or the Board may provide that the holder will
automatically be entitled to receive such equivalent Options.  The Board may
also make or provide for such adjustments in the number of shares of Common
Stock specified in Article IV of this 

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Plan as the Board may in good faith determine to be appropriate in order to
reflect any transaction or event described in this paragraph 6.7.

     6.8  Retention of Company's Rights. The Company's adoption of this Plan and
its issuance of Options to the Participants hereunder shall not interfere with
or limit in any way the right of the Company to terminate any Participant's
employment at any time and for any reason, nor confer upon any Participant any
right to continue in the employ of the Company for any period of time or to
continue his present (or any other) rate of compensation, and except as
otherwise provided under this Plan or by the Board in the Option Agreement, in
the event of any Participant's termination of employment for any reason, any
portion of such Participant's Options that were not previously vested and
exercisable shall expire and be forfeited as of the date of such termination. No
employee shall have a right to be selected as a Participant or, having been so
selected, to be selected again as a Participant.

     6.9  Amendment, Suspension and Termination of Plan.  The Board may suspend
or terminate the Plan or any portion thereof at any time and may amend it from
time to time in such respects as the Board may deem advisable; provided that (a)
no such amendment shall be made without stockholder approval to the extent such
approval is required by law, agreement or the rules of any exchange upon which
the Common Stock is listed, (b) prior to the consummation of the Initial Public
Offering, no such amendment, suspension or termination shall impair the rights
of any Participant under outstanding Options without the prior written consent
of a majority (based on the total number of shares of Common Stock subject to
Options held) of the Participants affected thereby, and (c) following the
consummation of the Initial Public Offering, no such amendment, suspension or
termination shall impair the rights of any Participant under outstanding Options
without the prior written consent of the Participant.

     6.10  Amendment, Modification and Cancellation of Outstanding Options. The
Board may amend or modify any Option in any manner to the extent that the Board
would have had the authority under the Plan initially to grant such Option;
provided that (a) prior to the consummation of the Initial Public Offering, no
such amendment or modification shall impair the rights of any Participant under
any Option without the prior written consent of a majority (based on the total
number of shares of Common Stock subject to Options held) of the Participants
whose Options are so amended or modified, and (b) following the consummation of
the Initial Public Offering, no such amendment or modification shall impair the
rights of any Participant under any Option without the prior written consent of
the Participant.

     6.11  Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board, the members of the Board shall be
indemnified by the Company against all costs and expenses reasonably incurred by
them in connection with any action, suit or proceeding to which they or any of
them may be party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or 

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paid by them in satisfaction of a judgment in any such action, suit or
proceeding; provided that any such Board member shall be entitled to the
indemnification rights set forth in this paragraph 6.11 only if such member has
acted in good faith and in a manner that such member reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful, and further provided that upon the institution of any such
action, suit or proceeding a Board member shall give the Company written notice
thereof and an opportunity, at its own expense, to handle and defend the same
before such Board member undertakes to handle and defend it on his own behalf.


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