A Dissertation report Submitted in Partial Fulfilment of the Requirements for the Award of the Degree of Master of Science in Accounting and Finance (MSc- A&F) of Mzumbe University.The paper examined the empirical relationship between economic growth and financial development (FD) in Tanzania over the period 1988–2012. The long-run and short-run parameters were estimated by use the Augmented Dickey Fuller (ADF) statistics and the Phillips-Perron (PP) approach for cointegration analysis. To determine the direction of causality, Vector error correlation model shows there is long run causality but only Domestic credit provided by banking sector had a short run and long run, Granger causality analysis was done. Empirical findings indicate that there is stable long-run relationship among variables; it was also found that financial development has a significant positive effect on economic growth. The Granger causality tests showed that there is bi-directional causality between financial development and economic growth in Tanzania for the period under study (1988–2012). This result therefore, supports financial development hypotheses. This means that financial development accelerates and augments economic growth in Tanzania and that economic growth leads to development of the financial sector in Tanzania. Thus, the government should strengthen the reforms in the financial sector so as to attract investors and improve the efficiency of all production activities in the country. At the same time, the government should enhance macroeconomic policies; fiscal policies, policies that attract foreign direct investment, and export promotion policies that on average lead to economic growth should.