Mabul Island is a small isolated island located in the east of Semporna, Sabah. The island is inhabited by refugees from southern Philippines, which consist of few ethnics such as Suluk, Bajau, Bisayak, and so on. The communities in small islands are usually late in the development process. They often face problems of adapting to the development and they are commonly left behind in many things. With low population density, many of these communities receive little attention from the government. This resulted in insufficient support and poor basic infrastructure and services. However, Mabul Island is a very popular tourist destination for diving activities after Sipadan Island in Sabah. Tourism development and the impacts on local community have been widely discussed in the literature. However, the role of local communities in the tourism from the perspective of identity is rarely emphasized. Tajfel (1972) defined social identity as “that part of an individual’s self-concept which derives from his knowledge of his membership of a social group together with the value and emotional significance attached to that membership”. Based on the conceptual framework introduced by Palme, Koenig-Lewis, and Jones, this study applied the theory of social identity in examining the differences between two major communities in Mabul Island; Suluk and Bajau communities. The objectives of this study were to study the relationships that existed within the groups and to investigate the impacts of tourism development on social identity of local communities. This study also examined to what extent the social identities can adapt to the tourism booming in Mabul Island.