The tourism industry has gained importance due to improvements in transport and communication systems that have reduced travelling time and costs. This is supported by increasing number of business trips, vacations, and social gains such as paid holidays that are making tourism a strategic economic activity in many countries. Tourism clusters are created as a strategy for easy promotion, coordination and networking of local actors to improve competitiveness of the sector for sustainable contribution to territorial development. This study assessed the Ruta Selva Valdiviana Costera (RSVC), one of the three tourism destinations under the Cluster Selva Valdiviana in Los Rios Region for competitiveness as a potential for territorial development. Based on the Tourism Cluster Development Model for Global Competitiveness, the study found that RSVC has significant potential for a competitive tourism destination. This is defined by its geographic location; mix of historical and cultural legacies of Spanish forts and German colonization; a diversity of natural parks with flora and fauna; participation of public and private sectors and the political will to organize the regional tourism sector to compete with other destinations in Chile. However, high seasonality, long distance from Santiago the main domestic origin of both local and foreign tourists, inadequate group marketing and branding of touristic products, poor infrastructure to and in some touristic sites, high informality of tourism establishments, poor mix of international language skills among local tourism service providers, absence of outdoor touristic activities in winter and weak networking among the actors weakens the competitiveness of the destination on the tourism market. The study recommends the need to explore how to reduce seasonality of outdoor events and transform tourism to a perennial economic activity; improving on destination marketing and diversification of touristic products and offers; and tracking tourism income generation capacity and contribution to territorial development.