Economic diversification has become a central policy priority in Macao, a city-region shaped by extreme land scarcity, institutional dependence on casino revenue, and deepening integration within the Guangdong–Hong Kong–Macao Greater Bay Area. This study examines how diversification unfolds under these structural conditions using policy analysis, statistical indicators, field observation, and practitioner interviews. The findings show that while non-gambling sectors have expanded and cross-border activities have increased, diversification largely takes the form of incremental adjustments embedded within the tourism–casino system. Emerging activities develop alongside, rather than in place of, the dominant structure, and spatial constraints further redirect new industries to Hengqin. These patterns suggest that in highly specialized and spatially limited economies, diversification is more accurately understood as layering and managed adaptation than as rapid structural transformation. Macao’s experience demonstrates how institutional depth and spatial limits shape the feasible pathways of economic change.