Sustainable livestock production is important to ensure continuous availability of resources for future generations. Most smallholder livestock farming systems in developing countries have been perceived to be environmentally, socially and economically unsustainable. Farming with livestock that is robust and adaptable to harsh environments is important in developing countries especially in semi-arid and arid environments. This review discusses the different sheep farming systems employed by smallholder farmers and associated sustainability problems facing them. The review also gives an overview of sustainability indicators and limitations to the sustainability for the different smallholder sheep production systems in South Africa. It is argued that genetic diversity is important for sustainability and needs to be maintained in sheep for sustainable production and reproduction performance. The application of traditional breeding and genomics to ensure sustainable production is explored. Animal breeding approaches, specifically genomics can be applied to improve areas of environmental sustainability of smallholder sheep farming systems but must be targeted to the specific production environments, challenges, and opportunities of smallholder production. The genetic traits important for sustainability, the role of genomics in improving these traits and linking these genetic traits to different farming systems in South Africa are discussed.