Community-based ecotourism (CBET) has become a popular tool for biodiversity conservation, based on the principle that biodiversity must pay for itself by generating economic benefits, particularly for local people. There are many examples of projects that produce revenues for local communities and improve local attitudes towards conservation, but the contribution of CBET to conservation and local economic development is limited by factors such as the small areas and few people involved, limited earnings, weak linkages between biodiversity gains and commercial success, and the competitive and specialized nature of the tourism industry. Many CBET projects cited as success stories actually involve little change in existing local land and resource-use practices, provide only a modest supplement to local livelihoods, and remain dependent on external support for long periods, if not indefinitely. Investment in CBET might be justified in cases where such small changes and benefits can yield significant conservation and social benefits, although it must still be recognized as requiring a long term funding commitment. Here, I aim to identify conditions under which CBET is, and is not, likely to be effective, efficient and sustainable compared with alternative approaches for conserving biodiversity. I also highlight the need for better data and more rigorous analysis of both conservation and economic impacts.