The small-fisheries social-ecological system in the western Indian Ocean (WIO) represents a typical social-ecological trap setting where very poor natural resources dependent coastal communities face local and global threats and engage in unsustainable practices of exploiting limited resources. Community-based aquaculture (CBA) has been implemented as an important alternative or supplementary income generating activity for minimizing the overdependence on marine natural resources and promoting biodiversity conservation. Despite its proliferation throughout the WIO region in recent decades, little is known about the degree to which CBA activities have contributed to achieving the objectives of breaking the cycle of poverty and environmental degradation and promoting community development and biodiversity conservation. In order to improve understanding of common challenges and to generate recommendations for best practice, we assessed the most common CBA activities practiced in the region through literature review and workshop discussion involving practitioners and key stakeholders. Findings indicated that despite favorable environmental conditions for various CBA practices, the sector remains underdeveloped, with few activities delivering the intended benefits for coastal livelihoods or conservation. Constraints included a shortage of seed and feed supplies, low investment, limited technical capacity and skills, insufficient political support, and lack of a clear strategy for aquaculture development. These are compounded by a lack of engagement of local stakeholders, with decision making often dominated by donors, development agencies, and private sector partners. Many of the region’s CBA projects are designed along unrealistically short time frames, driven by donors rather than entrepreneurs, and so are unable to achieve financial sustainability, which limits the opportunity for capacity building and longer-term development. There is little or no monitoring on ecological and socioeconomic impacts. Except for a few isolated cases, links between CBA and marine conservation outcomes have rarely been demonstrated. Realizing the potential of CBA in contributing toward food security in the WIO will necessitate concerted investment and capacity strengthening to overcome these systemic challenges in the sector. Lessons herein offer managers, scientists, and policy advisors guidance on addressing the challenges faced in building strategic development initiatives around aquaculture in developing countries.