Domestic land grabbing is defined as the process of land expropriation and displacement put in place by governments within their country borders to supposedly enhance development. Although development‐induced displacement occurs all over the world, China is responsible for a large fraction of such type of displacement and resettlement projects. Urban sprawl and land commodification for food security and agricultural modernization are the main consequences of domestic land grabbing in the country. Albeit the attention towards the implications of urbanization and resettlement projects on social stability of China has recently increased, studies which try to identify their main drivers, as well as to look at the impacts, trade‐offs and migrant views, are still rare. Drawing on a case study from a rural island in east China, this paper analyses resettlement projects in relation to (i) land tenure rights and compensation measures, (ii) rural workers livelihood and the hukou registration system, and (iii) environmental degradation. Results reveal that landless people are facing the risk of unemployment, food self‐sufficiency problems and the mismanagement of resettlements. Additionally, such projects bring about a higher risk of environmental degradation in rural areas. Copyright © 2013 John Wiley & Sons, Ltd.