Contested rules between the state and local communities over use and protection of forest affect environmental services and livelihood options in Indonesia's forest margins. Success in forest protection and emission reduction (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 became the first village in Indonesia to secure such an agreement. Our analysis of process, stakes and social capital bridging local, district and national scales of Hutan Desa aims to assist in reducing transaction costs for wider application. Streamlining of rules is needed to make Hutan Desa a viable part of REDD schemes at relevant scale, and to support locally appropriate mitigation action as part of national strategies, and as co-investment in stewardship for local, national and global benefits.