This paper proposes a novel theoretical model for the community-based enterprise, which could assist in achieving UN sustainable development goals within craft communities in developing nations. This model focuses on building enterprise skills in vulnerable communities, sustaining traditional crafts and strengthening community capacity for self-determination. This article distills qualitative data from case studies, participatory action research workshops and field observations within traditional handloom craft communities in Sri Lanka. It explores the prevailing status of community-based entrepreneurship practices and argues that under current practices, entrepreneurial culture is not deeply embedded in community life, leading young people to move away from the traditional way of life and damaging the cohesion of traditional communities. This study establishes the need to sustain levels of social capital, support family networks, and encourage innovation to develop enterprise in craft communities. We recommend various strategies for overcoming structural and socio-cultural barriers to enterprise and to establish community-based sustainable development.