This paper identifies the challenges of tourism development in the developing countries, with specific focus on Tanzania. The use of comparative analysis between Tanzania destination and competing destinations within the region was applied and the nature of the study has subjected the paper to rigorous qualitative analytical approach. The findings reveal that although tourism is still with greatest potential in Tanzania, the industry is still lagging behind compared to that of its neighbors. The main challenges identified include inadequate infrastructure, poor product development and management, poor marketing, poor linkages within local economy, insufficient institutional and technical capabilities and shortage of appropriate and specialized core and skilled personnel. The central pillars to tackle the challenges in order to develop sustainable tourism, including tourist satisfaction as a major determinant of destination loyalty and tourism benefits to destination stakeholders, have been discussed. Also specific strategies, practices and policy recommendation have been suggested.