The main drivers of tropical forest biodiversity loss are land clearing for agriculture, pasture and timber plantation development, followed by logging activities that degrade forests. Deforestation and forest degradation also significantly contribute to climate change, given that they contribute about 12–15% of total greenhouse gas emissions. Climate change in turn negatively affects biodiversity and agricultural activities in tropical countries. Therefore the governance of forest biodiversity needs to be closely connected to the governance of the climate. The following governance factors need to be addressed to reduce tropical forest biodiversity loss. First, corruption and illegal logging appear to contribute to deforestation and forest degradation. Second, the roles in forest management of the various government levels will need to be clearly spelt out, and the appropriate performance-based financial incentives (and related capacity) for forest conservation be provided to the appropriate government levels. Third, economic incentives need to be present for countries to commit to changes in the policies that drive deforestation and forest degradation. These economic incentives will be most effective when they directly reach the holders of the property and management rights to forests. Property and management rights will need to be adjusted for economic incentives to be effective and equitable, and benefit local and indigenous communities. The paper suggests policies and activities that the Australian government could implement within Australia and through the development assistance program to support a mechanism for Reducing Emissions from Deforestation and Forest Degradation (REDD), to reduce biodiversity loss, reduce carbon emissions, and contribute to local livelihoods.