Indonesia is the third largest producer of cacao in the world after Côte d’Ivoire and Ghana. Cacao production began in Sulawesi in the 1980s. It is now a major crop on the island, covering over 950 thousand ha, equaling 59% of Indonesia’s cacao growing area. By 2010 Sulawesi accounted for 67% of Indonesia cacao production.  As in other countries, smallholder production is the norm in Indonesia.  Approximately 2.2 million smallholder farmers cultivate 1.5 million ha of cacao, supplying 92% of the national production.  A study was conducted in Sulawesi to understand smallholder cacao systems and the importance of cacao to smallholder livelihoods.  The study identified the range of productivity, agro-biodiversity and economic profitability associated with smallholder systems.  A typology of four smallholder cacao systems was identified: monocultures, cacao integrated with shade trees, cacao integrated with fruit and timber trees, and homegardens.  Cacao is the dominant species in all systems, except homegardens where it is a minor component.  In South Sulawesi and Southeast Sulawesi farmers earn IDR 5.0 million (14% of total household income) and IDR 14.5 million (52% of total household income), respectively.  The productivity and profitability of smallholder cacao systems has been decreasing over the last 10 years. Yields have plummeted from 1000-1500 kg/ha to 500-700 kg/ha.  Discouraged, many farmers want to switch to other commodities, which could have devastating effect on the cacao industry. Key problems with smallholder production are the high incidence of pests and disease, limited access to quality planting material, and the low level farm management.   The paper provides analysis and recommendations based on the results of a scoping survey, garden inventory, and group discussion with farmers regarding how to improve the productivity and profitability of smallholder cacao livelihood systems, while maintaining sustainable environmental management.