Globally local governments play an increasingly important role in tourism development as central governments, through processes of decentralisation, transfer responsibility to the local level. While there has been much research on local government's role in achieving sustainable tourism, relatively, little research has been conducted on the capacity of local government to achieve sustainable tourism. This is particularly the case for developing countries. Thailand, a leading tourism country in South East Asia, has been facing successful tourism growth at the national level and negative tourism impacts at the local level. This draws attention to the need for enhanced local tourism management to ensure sustainable tourism as a whole. As a result of decentralisation, local government in Thailand now has a direct role in tourism administration. The aim of this study has been to examine the capacity of a local Thai government administration (Tambon Administrative Authority [TAA]), its impacts on and responses to sustainable tourism development (STD). Koh Tao, an international tourist destination, fulfilled the requirements of a case study for this research due to its rapid growth and the significance of the negative impacts of tourism. To achieve the research aim, the Nominal Group Technique (NGT) was first applied to document the current tourism issues, problems, their causes and potential solutions affecting STD across a variety of tourism sectors at the local level. In-depth interviews with relevant stakeholders were then conducted to examine the capacity of the TAA to respond to STD based on the proposed issues raised in the NGT. The research findings illustrate that the TAA has adequate capacity in terms of legislative authority mandate but limited capacity in terms of its resources, such as understanding and knowledge of tourism issues, insufficient budget and staffing levels, and lack of coordination between the TAA and other public agencies. The TAA's limited capacity has resulted in a number of tourism issues affecting STD in Koh Tao. These include, for example, degradation of environmental resources, need for land ownership legislation, insufficient infrastructure, lack of local people's understanding and knowledge about STD, and lack of tourism planning. The key recommendation of the study is that the capacity of the TAA needs to be enhanced to ensure tourism planning is developed to achieve the goals of STD. This can be achieved in several ways. Education and training needs to be made a priority for the TAA's members and staff to increase their understanding and knowledge of various issues related to tourism development. Alongside the residential population base, the number of immigrants and tourists needs to also be considered in formulating budget and staffing level support. A local working group needs to be established among public and private agencies and the community in Koh Tao to plan tourism and solve tourism problems on an ongoing basis. Both the methods and findings of the research can contribute to an understanding of the limited capacity of local government towards STD and how this can be overcome. These can extend not only to other local administrative units at tourist destinations in Thailand, but also in other developing countries which have similar patterns of tourism development to Koh Tao.