Sustainable cultural tourism is the main goal of this research due to important principle of alternative tourism which aims to decrease the conflicts and build up understanding among the people in the community, society and country leading to good understanding, loving and respecting the sacredness and honor of a human being wherein the research focuses on the study of the Chinese Yunnan community in Mae Ngon Watershed Area, Fang district, Chiang Mai province. A stage meeting opened opportunities for the administrators of the Sub-district Administration Organization (SAO) of Mae Ngon and community leaders as well as the stakeholders in considering and choosing the communities that they expect to have the cultural tourism destinations potentials. With partiality, the research committee conducted the research in the Chinese Yunnan community (Ban Yang) in Mae Ngon sub-district. This research evaluated the cultural tourism destination potential from a sample in the community consisting of target 50 individuals and used the research method as action research including many methods in data collection. Secondary data were from textbooks and printed documents/matter about Chinese Yunnan while primary data were from questionnaire, interview, community forum, brainstorming, exchange of ideas, pilot projects as well as observing real situations. Data were analyzed by descriptive statistics, personal characteristics of the sample. Results were on the evaluation tests of cultural tourism destination potential and people participation of the community. The research also analyzed the relationship between the evaluation results of cultural tourism destination potential and level of people participation in the community by chi-square test (X2-test). Results of the evaluation of the cultural tourism destination potential of Chinese Yunnan (Ban Yang) community showed it has high potential as cultural tourism destination since in the area it has First Royal Factory at Fang the Museum which is a live museum or Living SITE Museum. It highlights this community and the community committee as the center of presenting the history, local wisdom, and experience as an exhibition of things collected from the past or history of the community as a knowledge coupled with “green factory,” built following the Royal Initiatives of HRH Princess Sirindhorn who graciously desires that the Museum in Ban Yang community be a cultural tourism destination.