The Permanent Court of Arbitration case launched by the Philippines against China in 2013 presented the Arbitral Tribunal with the opportunity to answer a number of fundamental legal questions to clarify legal rights in the South China Sea and to contribute significantly to the progressive development of the law of the sea. The fundamental areas concerned China’s claimed historic rights within its ‘nine-dash line’, the lawfulness of some of its development activities in the South China Sea, and the status of insular features. This last area concerns determinations of features as to whether they are low-tide elevations (LTEs), rocks above water at high tide, or islands capable of generating the full suite of maritime zones. Classifying particular features differently from claimant States – of which there are six in the South China Sea – would significantly alter perceived maritime entitlements and potentially lead to revised and inconsistent assertions of maritime jurisdictional rights from features over which multiple sovereignty claims exist. Determination of the insular status of the numerous disputed features would also enable much-needed clarification of the troublesome Article 121(3) in the LOSC. This article examines the Tribunal’s interpretation of this provision – especially its extensive analysis of the imprecise expressions ‘sustain human habitation’ and ‘economic life’ – whereby it set a high threshold for insular features to have juridical island status. The logic of the ruling is assessed, including the Tribinal’s application of the clarified standard to the largest naturally-formed feature in the South China Sea: Taiping Dao/Itu Aba. The ruling of the Tribunal that this feature is not an island for the purposes of Article 121(3) is a great disappointment to the Republic of China (Taiwan) which has exercised continuous control over it since the 1950s, as well as the People’s Republic of China, which also claims sovereignty over most features in the South China Sea. This article concludes with an opinion as to whether the Tribunal made a well-reasoned and justified interpretation of Article 121(3), and considers the jurisprudential impact of the ruling and its implications for other States which possess remote and uninhabited insular features.