Communities need motivation in order to effectively participate in environmental conservation. However, potential socio-economic incentives for improving environmental conservation and livelihoods of communities surrounding Kondoa Rehabilitated Areas (KRA) are poorly known. The aim of this study was to analyze potential socio-economic incentives for effectively and sustainably improving environmental conservation and livelihoods of the communities surrounding KRA. The cross-sectional research design was employed. Simple random sampling technique was used to select 30 respondents from each of the four study villages, making a total of 120 respondent households. The study villages were Mafai, Ntomoko, Kalamba-Juu and Kalamba-Chini. Data were collected using questionnaires, focus group discussion and interviews. Ms-Excel and SPSS 20.0 computer programs were used to analyze data. Both descriptive and inferential statistical analyses were carried out. The findings revealed that 91% of respondents reported main socio-economic incentives available in KRA being provision of tree seedlings, fertilizer, improved seeds, beekeeping inputs and education programs. Binary logistic regression analysis indicated that statistically significant factors influencing adoption of socio-economic incentives in KRA are awareness (P < 0.01), land size owned (P < 0.05) and education level (P < 0.05). Roles of socio-economic incentives in improving conservation were improved afforestation, source of energy, controlled human activities and increased awareness. The study further revealed that 61% of the total annual household income was accrued from practicing activities related to socio-economic incentives. Chi-square test revealed that contribution of socio-economic incentive to total household income was statistically significant at P < 0.05. It was concluded that identified socio-economic incentives had a great potential of adoption in KRA. Beekeeping, tree seedlings and education programs were found to be statistically useful in both improving environmental conservation and livelihoods of KRA surrounding communities. The studyiii recommends capacity building interventions and incorporation of socio-economic incentives in national biodiversity strategies and environmental conservation policy frameworks.