Tourism is closely related with local people, their culture and environment. Moreover, it is also a growing industry and hence, closely associated with the socio-economic and political condition of a nation. This thesis basically focused on the prospect and problems of tourism in rural hill areas. The study adopted descriptive method and based on the communication with local people, government authorities and local groups, tried to analyze the relationship between local people, environment and tourism development. The major findings of the study were that the local people emphasized on the need of promotion and publicity of the tourist areas in the region for the tourism development. Similarly, equal emphasis was also put on the need to develop the basic infrastructures such as road and accommodation facilities. The major recommendations include the further exploration into the local initiatives at other regions and their impacts. The local initiatives have immense potential not only to develop their region but also to put pressure on the government to address their demands. Hence, this thesis would recommend further studies into the local initiatives and their impacts on the development. In addition, it also highlights the need of proper plans and policies of the government to support and sustain the local initiatives not only the sector of tourism development but in all development activities. The local initiatives can help conserve and promote the tourist sites and at the same time, it helps them promote the local culture and environment. To summarize, tourism industry cannot exist in isolation without considering its impacts on local culture and further, tourism industry cannot sustain with the involvement of local people and proper intervention of the government.