The proliferation of tourist villages in developing countries, including Bali, has ignited a significant role of tourist villages as catalysts for economic recovery, especially during the COVID-19 pandemic. Apart from the government discourse influencing tourist village development, village managers encounter other challenges in attracting visitors, such as digital communication readiness and political intervention. This chapter analyzes the factors causing the existential crisis of tourist villages through a study of 146 respondents in 179 Bali’s tourist villages. The present study discovered that the implementation of the community-based tourism concept is still far from expectations, with the main challenges coming from the complex social structure of Balinese society and external factors. Therefore, this chapter presents five justifications provoking the nonexistence of tourist villages: a spontaneous development model, limitations in formulating innovative products by village communities, digitalization readiness, political agenda intervention, and the complexity of implementing community-based tourism (CBT). Thus, this chapter recommends a collaborative tourism village development model based on local wisdom for better development. The originality and value of this chapter lie in its novel insights and unique contribution to the revamped literature regarding the development of tourist villages in Indonesia during the COVID-19 pandemic and transition period. By conducting interviews and surveys in 179 tourist villages, this chapter provides valuable insight into the nonexistence of tourist villages in Bali, identifies the main limitations in implementing CBT, and provides academic justification as a solution to the problem. Recommendations through a collaborative development model based on local wisdom in the present chapter emphasize practical solutions: increasing the presence and sustainability of tourist villages through local tourism exploration and providing a deeper understanding of the challenges faced by tourist villages in developing countries like Indonesia. This study was conducted during the COVID-19 pandemic, which may have unique and specific impacts on the dynamics and performance of tourist villages. These limitations should be considered when interpreting the findings and comparing them to other contexts for future research.