Large-scale shrimp aquaculture can have major social and environmental impacts. Can community-based approaches be used instead? We examined three coastal community-based shrimp aquaculture operations in northwestern Sri Lanka using a case study approach. These shrimp farms were individually owned by small producers and managed under community-level rules. The system was characterized by three layers of institutions: community-level shrimp farmers’ associations; zone-level associations; and a national-level shrimp farming sector association. The national level was represented by a joint body of government and sector association. We evaluated the effectiveness of this institutional structure especially with regard to the management of shrimp disease that can spread through the use of a common water body. Lower operational costs make them a highly attractive alternative to large-scale aquaculture. In many ways, private shrimp aquaculture ownership with community-level institutions, and government supervision and coordination seem to work well.