The United Nations Framework on Climate Change (UNFCCC), at its thirteenth meeting in 2005 (COP-11), agreed to start a work program to explore a range of policy approaches and positive incentives for Reducing Emissions from Deforestation and Degradation (REDD). This process was further encouraged in the 2007 COP-13 with the explicit consideration of REDD activities as a means to enhance mitigation action by developing countries in the future. This paper outlines the context of this ongoing political process by reviewing the science indicating that land-use change is a key contributor of greenhouse emissions globally and the assumptions that REDD activities may be competitive—in terms of cost effectiveness—in comparison to other mitigation options. The paper then examines REDD proposals submitted by Parties before COP-13 and identifies key economic, technological, methodological and institutional challenges associated with their implementation. These proposals are discussed in the light of major drivers of deforestation and ongoing efforts to address deforestation. This reveals another set of challenges which, if not taken into account, may undermine REDD effectiveness. The paper aims to aid the policy process and contribute to the best possible design of a REDD framework under the future climate regime.