Background: In Montenegro, there is a growing awareness of the necessity to further develop sustainable forms of tourism and foster economic development of mostly agrarian northern rural areas. However, this is of the utmost importance not only for sustaining local economy, but also for creating more balanced framework for territorial development. Objectives: Paper aims to set a framework for studying the role of innovations and entrepreneurship in developing sustainable agro-tourism in Montenegro through identifying main resources, obstacles, challenges and potentials of the process. Methods/Approach: The analysis is based on both review of the secondary sources and the fieldwork conducted between June and October 2015 in rural areas of Kuci and Durmitor, as well as the number of interviews with farmers and tourism professionals from the country. Results: The results highlighted the low levels of both entrepreneurial culture and hospitality awareness amongst local population, lack of investments, infrastructural backwardness and insufficient government support as the main obstacles to developing successful and sustainable agro-tourism ventures. Conclusions: Public bodies should create a comprehensive strategy for sustainable tourism development, which should focus on providing incentives, training and support to the farmers eager to diversify their agro-activities through entrepreneurial actions.