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Tourism has been encouraged in many of the world's poorer countries as a means of stimulating development. However, tourism is vulnerable to external shocks, which can damage a host country's economy, especially where reliance on tourism is high. This paper focuses on Bali, Indonesia where tranquillity was shattered by terrorist bombs in October 2002, and again in October 2005. It examines the impact of the 2002 bombings on the island's beach vendors,members of the informal sector who work at the margins of tourism. The UK's Department for International Development's (DFID) model of sustainable development is used as a guide to assess notional changes in vendor livelihoods and reveals the sharp reduction in their access to financial capital once tourism had collapsed. Fieldwork showed that livelihoods were sustained with difficulty after the terrorist attacks and that social capital played a major role in survival. Although visitor numbers to Bali are recovering, the research reveals significant changes in vendors' livelihood patterns. Social capital remains strong though it has changed in certain respects as a consequence of terrorist activity, one of the most negative changes being an increase in local religious tensions. The authors question the wisdom of encouraging tourism as a major vehicle for development without simultaneously promoting alternative income-generating opportunities to offer a safety net against external shocks to a vulnerable tourism industry. [ABSTRACT FROM AUTHOR]