Social entrepreneurship has emerged as a necessary response to the needs of today's society and economy. The thesis deals with social entrepreneurship in Croatia and its development challenges. The concept of social economy and its related concepts, as well as the principles of social economy, are defined. The concept of social entrepreneurship, dimensions and principles thereof are also defined and the SWOT analysis of the sector in Croatia is presented. It also defines the concept of social enterprise, and gives an overview of differences from traditional enterprises along the main areas of their activity. Social enterprise ecosystem in Europe and Croatia, criteria for identifying social enterprises, strategic framework, legislative framework, financial framework, and institutional framework of social entrepreneurship in Croatia are presented. The conducted research confirmed the hypotheses, insufficient institutional support hinders the development of social entrepreneurship in Croatia and the existing financial framework is insufficient for the development of social entrepreneurship in Croatia. The research confirms the need for greater efforts in the development support system for social entrepreneurship, especially in the institutional and financial support framework. The paper concludes that social entrepreneurship can play a key role in addressing the challenges of poverty, social inequality, climate change and social injustice, and that it has valuable potential to create values for the community and the economy.