Based on our fieldwork done in Wulong Gelao and Pengshui Miao Villages in China’s Chongqing Municipality, we explore opportunities and challenges associated with sustainable rural development in terms of socioeconomic development, ethnic community building, and identity maintenance in the context of Southwest China. The case study of these two particular Chinese ethnic villages will help to better understand the interplay of tourism and modernization initiatives with environmental and social variables at the local level.