We study interaction-induced localization of electrons in an inhomogeneous quasi-one-dimensional system-a wire with two regions, one at low density and the other high. Quantum Monte Carlo techniques are used to treat the strong Coulomb interactions in the low-density region, where localization of electrons occurs. The nature of the transition from high to low density depends on the density gradient-if it is steep, a barrier develops between the two regions, causing Coulomb blockade effects. Ferromagnetic spin polarization does not appear for any parameters studied. The picture emerging is in good agreement with measurements of tunneling between wires. © 2009 The American Physical Society.