Smallholder dairy farming is growing in Tanzania at a rate of 6% per year, with an estimated 190,000 registered farmers. Despite the fact that smallholder dairy farming is widespread in different parts of Tanzania where the climate is appropriate, the supply of milk and milk products in these regions has not kept pace with the rapid increase in the human population. Productivity in existing smallholder dairy herds is constrained by the small size of farms and their distance from markets, animal health and reproductive problems and lack of good-quality animal feeds in sufficient quantities. Other constraints include lack of infrastructure for input and output markets, unfavourable regulatory and taxation policies, poor flow of information, restricted access to credit and limited supply of dairy cattle. Nevertheless, the sector is acknowledged for its contribution to household food security, employment opportunities and as a regular source of income for farmers. Dairy production integrated into rural, peri-urban and urban smallholder mixed farming systems may increase and stabilize farm incomes and act as a catalyst for agricultural development and improved standards of living. The authors conclude that smallholder dairy production is an important undertaking and, if adequately supported by appropriate policies and adaptive research technologies, it may contribute significantly towards the household economy, self-sufficiency in milk and national gross domestic product.