Contested rules between the state and local communities over the use and protection of forests are a threat to Indonesia’s forests, environmental services and livelihoods. Success in forest protection and reducing emission from deforestation and degradation (REDD) requires conflict resolution. The recent village forest (Hutan Desa) regulation by the Minister of Forestry (P.49/Menhut-II/2008) details how to reconcile forest management targets and livelihood interests of forest-edge villages within the framework of a permanent forest estate. Lubuk Beringin in Bungo district, Jambi Province, Sumatra, became the first village in Indonesia to secure such an agreement. Our analysis of the process, stakes and social capital that bridged local, district and national levels for the Hutan Desa agreement aims to help in reducing transaction costs for wider application as part of any REDD schemes, identifies locally appropriate mitigation action as part of national strategies and examines co-investment in stewardship for local, national and global benefits.