The Spratly Islands are a group of over 230 small islands and reefs in the South China Sea. Both China and Taiwan, as well as four members of the Association of Southeast Asian Nations (ASEAN) – Vietnam, the Philippines, Malaysia, and Brunei –have made claims on part or all of the land areas and surrounding waters, which are believed to have major oil and gas deposits. Because there are overlapping claims, and no single country has had continuous possession of the area, it is unlikely that international legal procedures can resolve the dispute quickly. There are four major issues in the dispute: sovereignty, economic development, freedom of passage, and regional security. We focus on sovereignty and suggest a two-step process for dividing the islands. A fair-division procedure called Adjusted Winner (AW) would first be applied to the allocation between China and ASEAN, after which there would be an allocation among the ASEAN states. The example used to illustrate AW divides the region into five zones and concentrates on the first step, negotiation between China and ASEAN. We present three potential bidding strategies for China, and two for ASEAN, that give six different allocations of the islands. The AW allocations are efficient, equitable, envy-free and, in our example, give both sides between 65% and 83% of what we assume they would prefer.