Purpose - This paper1 presents, through a case analysis, the linking between knowledge management and the development of a smart tourist destination. The case here proposed, concerning the city of Prato, is a specific experimental project of the Region of Tuscany referring to the implementation of a Tourism Observatory for competitiveness and sustainability of the destination. The goal of this paper is to demonstrate how the Tourism Destination Observatory (TDO) can create a valid basis for the further development of tourism in this area, and if this could act as a driving force for the creation of a smart city. Design/methodology/approach - This work presents a theoretical-pratical approach. After an introduction highlighting the linking of knowledge management, sustainable tourism development and smart cities, we present, through the case methodology, the Tourism Destination Observatory referring to NECSTouR model (www.necstour.eu). By describing principles, phases and indicators proposed by the model for the measurement of competitiveness and sustainability of the destination, we illustrate the role carried out by the Observatory as knowledge management tool and as innovation means of local governance processes for the repositioning of Prato. We introduce original hypotheses of smart tourist development for Prato and a perspective of integrated and complementary measurements between two models: pillars and indicators of NECSTouR model and factors and indicators of SRF model (University of technology, Vienna, 2007). Originality/value - The methodology, which is presented, with reference to the European NECSTouR model, includes an original set of indicators on the sustainability and the competitiveness of tourist destinations, created by the Tuscan Universities and by the CNR (National Research Centre) in collaboration with the UPI (Union of Italian Provinces). The proposed solutions to develop Prato as a smart tourist destination are studied, with specific reference to the examined case, and represent tangible and innovative proposals for the smart development of the city. Practical implications - The outcomes of the application concern the possibility for the local administrators to undertake the direction of smart tourism development, referring to the NECSTouR (www.necstour.eu) methodology for the creation of a Tourism Observatory. Such methodology allows for exporting the model, here presented, on local knowledge management processes towards other Italian and European destinations. Concrete indications are provided in order to develop tourism processes and to start a transformation from a traditionally manufacturing city into a smart tourist destination.