This study centred on understanding how local communities participate in tourism industry in Bwejuu Village in Zanzibar and the benefit they are getting towards poverty reduction. Specifically, the study identifies tourism industry activities and how local communities participate in improving their livelihoods, find out factors influencing local community participation in tourism sector and lastly, and identify contribution of tourism sector in enhancing local communities’ livelihoods. Interviews, observations, documentary reviews and photograph taking are methods employed to the case. The study result shows that tourist hotels, beach, seaweed, historical building archives, diving and snorkeling, sailing boats, coral reefs and lagoons as well as mangrove swamps are some tourist activities in the settlement. Both men and women involves in the tourist activities. The tourist activities noted contributing to local communities’ livelihoods in terms of employment creation, leisure, income generation, increased government revenues, schooling, health, house construction and household consumption. However, language barriers, inadequate experience of operators, poor education and training, culture, commitment of actors and poverty level are some constraints highlighted. Following these challenges, the study recommends that the government in collaboration with other development partners interested in tourism industry development may opt to ensure capacity building to local communities and tourist operators in Zanzibar, to review the policy and legislations in place as well as to encourage stakeholder involvement in Tourism sectors as prospects for its development. In conclusion, it can be asserted that if tourism developers believe that local communities will be satisfied if they are used as labourers instead of being ownership of tourism activities. Thus, there is an urgent need to enhance participation and involvement of local communities in tourism sector. These communities must be actively involved in each stage of tourism planning and development in order to ensure that all their tourism activities and products benefit the residents. This will represent a significant step towards ensuring more adequate community participates in the industry, which is essential sector for sustainable local communities’ livelihoods improvement and thereby contributing to the national economic growth and poverty reduction agenda in Tanzania and other countries of the same context.