Ko Lipe (sometimes spelled Koh Lipe) is outside of the jurisdiction of Tarutao National Park, and as such is exempt from certain laws prohibiting development. It is surrounded by uninhabited islands of the Butong Archipelago. The island is home to about 500 Chao Ley, or Sea Gypsies, who were given a grant to half of the island and live in small villages, predominantly around the far east side of the island near Sunrise Beach. The name "Ko Lipe" means "Paper Island" in the local Chao Ley language. The huge tourism business of Ko Lipe results in water shortages, waste disposal issues, and other environmental problems. It is common to see garbage being burnt since there are not many reliable options for waste disposal.

Ko Lipe has three main beaches: Sunset Beach, Sunrise Beach, and Pattaya Beach. Accommodation from grass huts to air-conditioned bungalows can be found on these beaches. It is possible to walk around the entire island in little over an hour. There are many sites for scuba diving and snorkeling around Ko Lipe and its neighbouring islands. On Ko Lipe there are many dive shops and resorts that rent out snorkel gear or arrange boat trips. The calm, clear water makes Ko Lipe ideal for snorkeling, with 25% of the world's tropical fish species found in the area. There are large varieties of fish around the coral just a few meters deep straight off all of the beaches.

Ko Lipe is outside of Tarutao National Park jurisdiction, and as such is exempt from the laws and legislation that protect the rest of the national park. The island is rapidly growing to meet the demands of increase in tourism, and is facing quite a few issues with rubbish and animal conservation. There are projects currently in place to keep Ko Lipe clean.