The paper studies a REDD pilot project carried out by TFCG and MJUMITA in Kilosa district, Tanzania, and its potential implications for livelihoods and project sustainability. The aim is moreover to gain knowledge of value to the development of REDD policies at national level. The analysis is based on empirical data from three pilot villages taking part in the pilot project. A household survey and key resource person interviews were carried out in the villages, in addition to in-depth interviews with staff from the implementing organizations and key REDD stakeholders. The Sustainable Livelihood Approach and theories on how to create sustainable and legitimate systems for natural resource management were used to analyse the data. The role of district level governance in a REDD scheme needs to be strengthened and the country's land tenure system needs reform. Local variations in income, resource dependence, forest use and social cohesion need recognition when planning, designing and implementing REDD policies in order to generate an enduring and effective REDD system.