Although deforestation remains widespread in the tropics, many places are now experiencing significant forest recovery (i.e., forest transition), offering an optimistic outlook for natural ecosystem recovery and carbon sequestration. Naturally regenerated forests, however, may not persist, so a more nuanced understanding of the drivers of forest change in the tropics is critical to ensure the success of reforestation efforts and carbon sequestration targets. Here we use 35 years of detailed land cover data to investigate forest trajectories in 3014 municipalities in the Brazilian Atlantic Forest (AF), a biodiversity and conservation hotspot. Although deforestation was evident in some regions, deforestation reversals, the typical forest transition trajectory, were the prevalent trend in the AF, accounting for 38% of municipalities. However, simultaneous reforestation reversals in the region (13% of municipalities) suggest that these short‐term increases in native forest cover do not necessarily translate into persistent trends. In the absence of reversals in reforestation, forests in the region could have sequestered 1.75 Pg C, over three times the actual estimated carbon sequestration (0.52 Pg C). We also showed that failure to distinguish native and planted forests would have masked native forest cover loss in the region and overestimated reforestation by 3.2 Mha and carbon sequestration from natural forest regeneration by 0.37 Pg C. Deforestation reversals were prevalent in urbanized municipalities with limited forest cover and high agricultural productivity, highlighting the importance of favorable socioeconomic conditions in promoting reforestation. Successful forest restoration efforts will require development and enforcement of environmental policies that promote forest regeneration and ensure the permanence of regrowing forests. This is crucial not only for the fate and conservation of the AF, but also for other tropical nations to achieve their restoration and carbon sequestration commitments.