This study examines the product development practices used by Islamic banks in Oman and the challenges Islamic banks face in Product development. The study used a qualitative research method, mainly interviews. Five participants working in the product development department of both full-fledged and Islamic windows are interviewed. We notice that there needs to be more consistency between theories and practices. The finding reveals that despite the theoretical framework for Islamic banking, the product development process has three stages with 18 elements. Most Islamic banks in Oman mainly used two elements in each stage. In idea generation and acceptance, most Islamic banks prefer to develop concept papers and then seek the approval of the Shariah board. In converting the concept to the product stage, most of the participants agreed that creating an IT system for the product and in-house testing are the most important elements. Marketing the product and full-scale launch is crucial in the commercialization stage. Lastly, most participants agreed that Central Bank regulations are the biggest challenges in product development. CBO stipulates stringent regulations on Shariah requirements and the banking operation. Therefore, since Islamic banks are still at an infant stage, CBO should be flexible to the Islamic banking industry as this will improve their competitiveness in the market.