In Tanzania, well-defined land tenure and resource protection apply in forest reserves which account for 30% of forested land, while the remaining 70% (mostly miombo woodlands) are village and general lands with very limited protection. The aim of this study was to determine local people’s ownership rights, knowledge and institutional capacity for sustainable management of resources in forest reserves and general lands. Data were collected using participatory rural appraisal, structured and semi-structured interviews, as well as aerial photographs and landsat images. In general lands, woodlands declined by 50% between 1964 and 1996, bushlands and croplands increased by 599%, and settlements and homegardens increased by 277%. These land use and vegetation structure changes are attributed to harvesting for charcoal production and shifting cultivation. The continued decline in aerial woodland cover in the general lands suggests that common property regimes do not function in the area. Local institutional capacities are weak in enforcing control mechanisms to check the overuse of resources, which tends to approximate open access conditions. The issues of land tenure and village empowerment are not only institutional, but also political in nature. Government institutions should provide and motivate for an enabling environment, including acknowledgement of traditional knowledge, well-defined property rights and operational village by-laws. In order to ensure equity and sustainable development of natural resources, the paradigm shift in management is important whereby communal goods are to be managed for the benefit of the local society.