The aim of this study is to determine capital structure and banks performance in Tanzania, a case commercial banks operating in Zanzibar. The study employed Secondary data from 2015 to 2020 whereby random effects panel regression model used for estimation in the linear equation econometric model. Descriptive research design was applied in the study The results of the analysis show that, the two independent variables (short term debt to equity DE ratio and equity to total asset ratio) have the positive and significant relationship with return on assets but only one independent variable (long term debts to total assets) found to have negative and significance relationship with return on assets. Generally, the findings of this research confirmed a positive relationship between capital structure (short term debt to equity DE ratio and equity to total asset ratio ETA) and financial performance measured by ROA of the commercial banks operating Zanzibar. However, when ETA measured with ROA the resultant positive relationship shows a short-run impact meaning that there is less significant relationship due to their coefficient value as compared to the short-term debt to equity DE having coefficient of high value of increasing effect in financial performance measured by ROA, this making commercial to base more in capital structure of the short-term debt to equity. When long term debts to total assets LDA measured with ROA the results were found to be negative and significant, leading the commercial banks to neglect the capital structure of form (debts to total assets LDA) since the more they base in this the less the financial performance is incurred and cause an adverse effect to the bank’s profitability.