Analysing the dynamics of agrarian change and economic diversification is central for understanding the current transformation of African countries under market reforms. This article examines the complex changes taking place in the densely populated Uluguru Mountains of Tanzania, and places the Uluguru case in the context of wider debates dealing with market liberalisation, economic diversification, poverty, and inequality. It argues that rural households are not 'trapped in decline' on the Uluguru Mountains, as depicted in previous literature. Under the harsh realities of farming in this area, households can improve their livelihoods in three ways - short of migrating and in addition to relying on remittances. These are to expand land cultivated in the surrounding plains, to experiment with alternative farming systems, and to increase non-farm income. Uluguru households are doing all of the above, with a certain degree of success. Economic diversification can thus play an important role in improving rural livelihoods in Tanzania and beyond, but this process is more likely to take place in locations with well-established economic ties and relatively good access to major markets.