The Union Government’s Poverty Reduction Strategy Paper (PSRP) and the Zanzibar Government’s Zanzibar Poverty Reduction Paper (ZPRP) seek to reduce poverty in Tanzania. This article conceptualized poverty as a multidimensional problem involving health, education, access to socio-economic and political power, and status. From independence and lasting into the 1990s, it was thought that people’s development and eradicating poverty was the sole responsibility of the government, assisted occasionally by aid agencies and donor countries. Development was a government affair and citizens were, by default, the beneficiaries of development. Now, however, because of various problems, especially the state’s declining financial capacity, it has become clear that the central government cannot by itself address poverty. Local governance institutions are of central importance due to their service provision role and their close links to the people at the grassroots level. But in this they depend on other institutions, such as the private sector, NGO’s, CBO’s, and donors. The success of poverty eradication efforts depends on how the central government devolves powers and resources to local authorities, and how the central government puts in place mechanisms to hold local authorities accountable. This article contends that Local Government Authorities (LGAs), as currently structured and financed, cannot succeed in the assigned role of fighting poverty in Tanzania. Local government structures, relations with other institutions, and existing levels of resources limit the capacity of LGAs to fight poverty in their areas of jurisdiction. The article is divided into four main sections. The first offers poverty profiles of Tanzania Mainland and Zanzibar and makes a comparative analysis. The second section looks at local government structures and functions and examines the capacity of LGAs. The third section examines the relationship between LGAs and other institutions. The fourth and last section discusses the challenges in poverty reduction that face LGAs.