Increased administrative discretion for human resource and financial management is commonly seen as a key component of efficient service delivery. However, the directive attitude of some central government officials in Tanzania undermines the administrative discretion of local councils to implement approved local plans and budgets. Using a case study of two local councils in Tanzania, this study investigated the influence of decentralization on administrative discretion and decision space. The findings show that local councils have little administrative discretion and decision space over human resources, financial management, and service delivery. The study calls for a comprehensive review of decentralization policies and local government legislation to address the allocation of powers and decision space of the institutional capacity of local councils to provide local services. Their roles and responsibilities should also be specified in the national constitution to safeguard them from the encroaching “directive culture” of central government officials.