Recent discussions about power and politics in tourism have indicated the importance of understanding the tensions inherent in issues of local identity, representation, and conflicts in the development and management of heritage tourism destinations. More than a decade of cultural heritage tourism in the Upper Mustang Region of Nepal illustrates these tensions. The paper examines how tourism, heritage preservation, local livelihood, and community empowerment are intertwined in a complex web of globalization, power, and sustainable development at multiple scales and spaces. Using political economy as the analytical framework, the role of key stakeholders in the development of tourism in Upper Mustang is examined, and the tensions between the stakeholders at local, national and international scales critically appraised. The focus of the study is Lo Manthang, a medieval walled city in central Nepal, which was opened in 1992 to international tourists as a low volume-high value tourism destination. The central government instituted a policy of excluding local communities from opening hotels and other tourism services and agreed initially to share 60% of tourism revenues with local communities. Data show that the government did not honor its agreement. Furthermore, tensions started to occur between the government , local NGOs, international NGOs, and local communities concerning policies about heritage preservation, livelihood opportunities for local communities, and appropriation of cultural heritage for tourism development by various entities. The study concludes with five possible scenarios for the future of tourism in Upper Mustang.