The Local Government Association (LGA) said councils that harness new powers given to them through devolution stand to gain the most from the growing industry.
Domestic tourism is predicted to grow 2.9% every year over the next decade, outpacing the overall economy which is expected to expand 2.5% yearly, according to research commissioned by the LGA.
Tourism is thriving in part due to holidaymakers who are reportedly taking advantage of the falling pound following the EU referendum vote to spend more while in the UK.
And a growing trend for "staycations" among Britons is also helping to fuel the upsurge.
Latest industry figures showed there were 103 million overnight trips in England in 2015, an 11% increase on 2014, while expenditure jumped 8% to £19.6 billion.
The West Midlands saw the biggest increase in overnight trips up 22%, followed by Yorkshire at 20%, and London and the South West both at 14%, according to the LGA.
Ian Stephens, chairman of the LGA's culture, tourism and sport board, said: "Councils have long recognised, and supported, the value of tourism to local growth, jobs and prosperity, which the devolution agenda should be primed to exploit.
"The tourist economy is one of the UK's fastest growing economic sectors and councils have the opportunity to align their devolved responsibilities to improve their tourism offer to best showcase their unique identity and heritage."
He said decisions about how to boost tourism "are best taken at the local level", adding that the Government should "keep up the momentum on agreeing devolution proposals to further boost tourism-led growth and transform local economies".
The LGA said councils that have launched ambitious projects - such as Plymouth which re-branded itself "Britain's Ocean City" to capitalise on its maritime heritage - have seen "huge economic returns on investment".
Liverpool City Council has used its borrowing powers to fund major refurbishment and renovation projects to the Philharmonic Hall, the Royal Court Theatre and other cultural centres to boost tourism.
Councils will be able to keep all locally raised business rates by 2020 which will allow them to invest in projects to attract tourists.
New combined authorities, which allow groups of local councils to pool their powers and resources and take decisions collectively, could also help areas tap into the growing tourism industry, the LGA said.
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