Eradication of extreme poverty and hunger is a major challenge of the entire universe in the 21 st century. In fact it is the number one goal of Millennium Development Goals (MDGs). Poverty in Islam is defined as a state whereby an individual fails to fulfill any of the five basic human requirements of life (Religion, Physical self, Knowledge, Offspring and Wealth). In line with brotherhood concept which is emphasized in Islam, the Holy Prophet (PBUH) in 9AH received obligation on Muslims to pay zakat on wealth. The institution of zakat is a unique instrument and mechanism in Islam that is used to combat poverty. This paper intends to explore and share through guidance from relevant verses of the Quran and Hadith of the Holy Prophet to examine the role of zakat as an institution in tackling poverty. Thus, this paper provides an in depth, state of the art knowledge and insights that are inspired by prophetic worldviews on how Islam addresses poverty with the aid of zakat and it concludes that the institutionalization of zakat as an alternative strategy would provides the foundations for sustainable development and good life (hayat tayibah).