In Armenia and Georgia, tourism has become part of the development strategies that aim to revitalize those mountain areas experiencing a rural exodus and anemic economic structures. Association agreements between the European Union (EU) and Georgia (2014) and the EU and Armenia (2018) promote community-based tourism (CBT), emphasizing the importance of facilitating cooperation between stakeholders and inclusion of local communities. This study describes the current application of CBT in Georgia and Armenia to elucidate the understanding and perception of the concept by different stakeholders and to provide recommendations for the development of comprehensive CBT practices in the South Caucasus. We used qualitative methods within our research. Our overall analysis includes policy documents and semistructured interviews with tourism and rural development authorities, civil society organizations, and entrepreneurs. Our key findings reveal the various factors that influence the sustainable development of CBT projects, especially in mountainous areas. We recommend integrating tourism and community development practices, elaborating specific guidelines for CBT projects, and filling the knowledge gap of community development facilitators regarding tourism practices. We also suggest focusing more on diversifying community-based products to expand cooperation among service providers.