We present a distributed algorithm which constructs a fixed node-degree overlay network for efficient fault-tolerant multi-hop communication in large distributed systems: Given a fully connected weighted graph, where the weight of an edge represents the cost of a connection, the algorithm builds and maintains a Delta-regular subgraph that is Delta-node connected, ensures failure locality, and has low total weight. The algorithm automatically adapts to a dynamically changing environment, is guaranteed to stabilize, and exhibits good average case performance as well. It is hence well suited for both establishing fault-tolerant communication topologies in CDMA-based wireless ad hoc networks and for constructing robust overlay graphs in peer-to-peer networks. Keywords: FT Communication, FT Mobile Computing/Networking, Distributed Algorithms, Redundant Paths, Overlay Networks