Integration of climate change measures in local development planning and delivery of Climate Compatible Development (CCD) at local levels is widely advocated to assist achievement of the Sustainable Development Goals. Such integration is not straightforward, and limited knowledge on multi-level governance of CCD exists. To progress this critical enquiry, we build on the concept of Climate Policy Integration (CPI) to assess how climate change measures are integrated in local development planning. We investigate the existing institutional arrangements across local levels (village to district) and sectors, and the barriers to and opportunities for CCD within local government authorities (LGAs). Particularly, we draw on qualitative analysis of local development policy and interviews conducted with LGAs in Muheza District of Tanzania. Findings show that several barriers, including under-resourcing, unreliable information on climate impacts, and the lack of guidelines for climate-development in key national policies are hindering the process towards CCD in local development planning. This study suggests that building capacity both within LGAs and at the national level are required to achieve CCD at sub-national levels. Currently, measures to address climate change are mostly implemented by development partners, so coordination between LGAs and these external stakeholders is essential to ensure consistency between climate and development objectives. Finally, our findings support a flexible approach to CCD, where emphasis on each of the three components of CCD—mitigation, adaptation, and development—can vary across time and space.