1. Illegal private land deforestation threatens global biodiversity, even in areas with native habitat requirements stipulated by law. Compliance can be improved by allowing landholders to meet legal reserve requirements by buying and selling the rights to have deforested land through a Tradeable Development Rights system (TDR). While this policy mechanism may prevent native habitat area loss, the spatial pattern of reserved areas will shift, creating novel landscape patterns. The resulting altered fragmentation and connectivity of habitat will impact biodiversity. TDR may also allow landholders to earn rent on land they never intended on converting, resulting in additional deforestation elsewhere and net habitat loss. 2. We construct a simulation model to explore the potential implications for biodiversity when development rights can be traded, compared with the landscape resulting from enforced individual compliance with deforestation laws. 3. We find that where future deforestation is very likely, a TDR market can provide better outcomes for both biodiversity and agriculture, resulting in more connected habitat networks with larger fragments and fewer edge effects. However, the TDR market can be harmful if future deforestation is unlikely, or if one habitat type is tightly spatially correlated with high economic returns from agriculture. 4. Policy implications. Allowing landholders to buy and sell the rights to keep more cleared land than legally stipulated will result in transformed multi-use landscapes. Losses of native habitat in some areas will be offset in others. We conclude that trading forest development rights has the potential to improve habitat configurations, but that careful consideration should be given to current species distributions and likely future deforestation scenarios.