While many empirical studies show that participation in rural labor markets is an important household livelihood strategy, data on Tanzania show that the participation in the rural labor markets is still relatively low. This study examines the factors behind the development of village labor markets in Tanzania. Using spatial econometric techniques, the study shows that, despite their incipient development, rural labor markets in Tanzania are significantly interlinked across space. Furthermore, underlying factors for development of rural labor markets, such as access to roads and availability of credit, have varying impact across space. This implies that policy interventions would also have varying effects over space. The study shows that most of the policy interventions for promoting rural labor markets are likely to have greater impact in the northern (eastern) parts of the country than in the southern (western) part of the Tanzania.