Heritage-based urban regeneration is a crucial strategy for preserving cultural identity while fostering sustainable urban development. This study examines the case of Tarout Island, one of Saudi Arabia’s oldest continuously inhabited sites, which faces challenges related to urbanization, infrastructure deterioration, and heritage conservation. As part of Saudi Vision 2030, urban regeneration efforts must balance modernization with the protection of historical and cultural assets to maintain the island’s unique identity. Through a review of global, regional, and local case studies, this research identifies best practices in heritage-driven urban renewal, emphasizing adaptive reuse, sustainable tourism, community engagement, infrastructure integration, and environmental sustainability. The findings highlight the importance of a comprehensive regeneration framework that not only safeguards historical sites but also fosters economic growth, cultural continuity, and community participation. The study proposes a strategic framework for heritage-based urban regeneration in Tarout Island, integrating conservation policies, sustainable tourism models, and participatory planning approaches. Key challenges such as legal enforcement, funding constraints, and the risks of over-commercialization are also addressed. By adopting a holistic and sustainable approach, Tarout Island can serve as a model for heritage-driven urban development in Saudi Arabia, demonstrating how cultural preservation and modernization can coexist harmoniously.