This paper analyses the determinants of informal employment in Tanzania’s construction industry. A Logit regression model is employed in estimating factors that influence the choice of type of employment (formal versus informal) for micro and small entrepreneurs. The results reveal that higher earnings in the informal compared to the formal settings – given the professional status of the micro and small practitioners – is among the major reasons for workers in this industry to choose informal rather than formal employment. The other factors that contribute to choosing informal employment include; lack of capital, which deters micro and small entrepreneurs from starting large formal firms, and low education. For firms, the possibility of paying the workers low salaries, and being female are factors that increase the possibility of informal employment. Policies suggested that can enhance creation of decent employment are; improving financial services through risk mitigation, credit information dissemination and outreach to MSEs; enhancing and rationalizing earnings in the economy; and improving the quantity and quality of education as an enabling instrument.