The gazetting of Derema Forest Corridor (DFC) in the Usambara Mountains of north-eastern Tanzania is examined in this study. This area will become a national forest reserve and it is discusses herein how this process affected the livelihoods within local communities and forest conservation outcomes. The study results show that the resettlement and compensation exercise did not adequately address the interests of the affected farmers but rather set a precedent for future problems and conflict between conservation and livelihoods in the area. Although crops were compensated at replacement value, the poorest farmers were neither afforded the opportunity to improve their living standards nor their productive capacity, or even to restore them to previous levels. On the conservation side, regeneration is happening rapidly and the tree diversity index value of 3.2 signifies that forest species are recovering after abandoning crop cultivation.