This paper will introduce the progress, challenges and opportunities in the development of ecotourism and sustainable tourism of Dali (A tourist destination in the southwest of China) and some strategies of sustainable tourism used by the local government. Dali is mainly located in the state of the west of Yunnan province, southwest of China. Dali boasts impressive natural scenery, has a brilliant and long history and unique national culture. Cangshan Mountain and Erhai Lake fuse together with the Dali Ancient City, odd mountains and clear water combine with the Bai affectionate feelings, it has become a popular tourist destination at home and abroad. In the main body of this paper, the challenges of tourism development including the environmental situation of Erhai lake, Cangshan mountain protected area, historical and religious heritage and the social situation of the local minority group will be analyzed. In response to these situations, the measures and policies issued by the government will be introduced, and use data statistics to analyze the achievement of ecotourism and sustainable strategies. In the last part, we will make a prediction for future tourism development opportunities.