Ceylon sapphires, known after the island's colonial-era name, enjoyed a huge boost five years ago when it was revealed that one formed the centrepiece of the engagement ring Prince William gave Catherine Middleton.
They are renowned as the best sapphires in the world, but gem traders say artificial stones -- coloured glass that to the untrained eye are virtually indistinguishable from sapphires -- are being passed off as the real thing to unsuspecting buyers.
"This is the biggest threat to our industry. Our reputation is at stake," said Nissanka Weerasena, who owns a chain of upmarket jewellery stores in Sri Lanka.
"These coloured pieces of glass imported by the kilo are killing the market for gems."
Stories of buyers getting conned into buying fakes are legion.
National Gem and Jewellery Authority chairman Asanka Welagedara recalled how one Australian buyer who spent $14,000 only discovered that nearly half the stones he had been sold were fakes when he had them tested by the state-run regulator -- by which time it was too late.
"The technique of heat treating semi-precious stones originated in Thailand, but our people have now perfected the art," Welagedara said.
"There is a 10-fold price difference between a heat-treated blue sapphire and a natural stone, so naturally there is a temptation to sell treated stones as natural ones."
Problems are particularly common along Sri Lanka's southern coast, a popular tourist draw.
"We are seeing a new trend of cheating, especially along the coastal tourist belt," said a senior Sri Lankan police officer who spoke to AFP on condition of anonymity.
The best-know mining area is Ratnapura, or the City of Gems, where a stone thought to be the largest blue star sapphire in the world was discovered last year.