Policy and research on Tanzania's cotton sector has recently turned to the role of rural institutions in correcting for continued market failures. Current work has, however, not sufficiently addressed how the process of institutional change has proceeded on the ground. Given Tanzania's rich and complex colonial – and more recent ‘socialist’ – history, it is evident that the process of rural institutional change is not straightforward. This paper focuses on evidence from field research, conducted in 2006–7, from cotton‐producing villages in two regions in Tanzania. The paper explores the uneven ways in which the current and new institutional structures are exploited by producers and turns to Tanzania's rural and institutional history to explain these findings.