This paper describes the emerging livelihood benefits and challenges of community reforestation in Timor-Leste and discusses implications for smallholder carbon forestry schemes. Social research was conducted in an upland area of central Timor Leste with farmers who have been planting trees since 2012 for soil stabilisation, timber, biodiversity enhancement and potential carbon income. A semi-structured survey of 40 tree planting households across six villages was conducted in 2017 to determine the perceived benefits and challenges of reforestation. Additional in-depth, qualitative interviews were conducted in 2018 with 5 village leaders, 8 project farmers and 10 non-project farmers to gain a deeper understanding of some of the issues raised in the survey. Farmers reported that the benefits of tree plantations were income from tree payments from an NGO; investment in children’s education; and improved biodiversity. The challenges to reforestation included livestock damage; lack of water; insects; weeds; and distance to the tree plantations. We conclude that community-based reforestation projects in Timor Leste have the potential to contribute to smallholders’ livelihoods through direct carbon payments and ecosystem services. However, household equity in terms of land ownership, labour, carbon income and social development need to be addressed.