The high reliance on charcoal makes Tanzanian producers, traders and consumers vulnerable for environmental problems such as deforestation. Increasing the sustainability of the charcoal chain in Tanzania calls for a comprehensive approach that accounts for a multitude of aspects (e.g technological, economic, social and environmental issues). At present, the development of such a comprehensive policy is hampered by lack of information about the charcoal chain as well as the limited recognition of policy makers in Tanzania of the interdependencies between the segments within the charcoal chain. This paper aims to provide a comprehensive analytical overview of all three components of the charcoal sector: production, trade and consumption. This overview contributes to the development of a comprehensive policy regarding the role of charcoal in Tanzania’s energy strategy. Preliminary lessons drawn from the available sources of information include the following: (1) The vast magnitude of the industry implies that changes in the sector can only be realized gradually with a comprehensive approach as a basis. Sudden interventions such as the ban on charcoal production and trade are counter-effective; (2) Despite the high environmental awareness among the charcoal producers, their poverty leaves no alternative but to continue the profession of charcoal making. Lack of alternative livelihood options, prevent them from shifting to more sustainable income sources; (3) Kiln efficiency is extremely low, thereby enhancing the rate of deforestation. Projects supporting the improvement of kiln efficiency would greatly support local communities as well as the environment. (4) Charcoal induced deforestation causes ample externalities, such as downstream water shortages. Because of these relationships, innovative economic instruments such as Payments for Environmental Services (PES) could be considered. (5) Current policies directed at the charcoal chain are inefficient in many ways. The command and control policies dominating the approach of the current Tanzanian government need to be supplemented by market-based approaches.