The site and situation of Bali, Indonesia and the development of tourism on the island is described in this paper. Next, the debate over appropriate scales of tourism development is reviewed, with specific reference to Bali and the development of homestays. A case study of homestays in one village in south-central Bali is presented, followed by an examination of the religious significance of Balinese domestic architecture and modifications to domestic housing resulting from the development of homestays. It is argued that although conversion into homestays has enabled residents of Bali to become involved in tourism as entrepreneurs, and not merely as employees, in keeping with sustainable tourism objectives, this is not without social/environmental costs. The religious significance of a site can often be compromised, and where land use has become particularly intensive, there may also be negative environmental impacts