This study investigates the impacts of park establishment on communities and how institutional structures, such as customary laws, can influence communities’ involvement in ecotourism. A sustainable livelihoods (SL) approach was adopted as a framework to analyze the relationships among institutional processes and organizational structures (i.e. NCR, institutional arrangement), livelihood strategies and livelihood outcomes. In-depth household surveys and stakeholder interviews were undertaken during three months of fieldwork conducted in Tun Sakaran Marine Park (TSMP), Sabah, Malaysia. Although TSMP contains beautiful islands, and has many attributes and potential to be suitable for ecotourism development, surprisingly, this study found out that the local communities are not involved in tourism. At the same time, dive operators are bringing divers and snorkelers to the park on a daily basis. In conclusion, ecotourism as an alternative livelihood in TSMP can be achieved through efficient institutions i.e. the implementation of policies that are informed by the local situation. Therefore, institutional support should be strengthened if ecotourism is to become a livelihood strategy for communities in TSMP.