Tourism villages that are managed under community-based tourism (CBT) are commonly practiced in Indonesia. Some of the villages even have received national and international awards for their commitment to sustainable tourism. Despite there being extensive research conducted on CBT, there is still a notable gap in the existing literature on this subject. Therefore, this qualitative research examined the socioeconomic dynamics impact on the development and sustainability of tourism villages. Data was collected through in-depth interviews with relevant informants and focus group discussions from Sambirejo and Nglanggeran villages, in Yogyakarta Special Region, which won national and international awards in 2021 and 2022. The results showed the significant influence of socioeconomic dynamics within these communities on the development and sustainability of tourism villages. These dynamics include an increased community awareness of the responsible use of natural and sociocultural resources, a shift toward the diversification of income sources beyond tourism, and an enhanced community skill and knowledge base derived from experiences gained beyond their village, such as working as international labor migrants.