Nepal has a painful history of social, political, economic and ecological problems affecting the majority of poor people. The history of forestry in Nepal highlights how forest management shifted from being a local affair under the feudal regime to a situation where the state, following the nationalization of forests in 1957, controlled the forest use and management. In 1976, this 'centralized' system shifted from the state's technical revenue-oriented forestry to people-centred community forestry, both in government policy and in the practice of halting and reversing deforestation through local communities. The policy shift was also based on concerns for rural development and poverty issues, particularly to improve livelihoods of the forest dependent poor people. By critically analysing the history of forest policy in Nepal, the paper argues that the policy shift and the current community forestry policy and practice have largely failed to address equity. Despite the increased emphasis on equity issues in the current policy, this historical inequity is presently continuing and hindering the potential of community forestry to improve the livelihoods of most forest dependent poor people. The key reasons for sustaining inequity is because the policy and practice, which are being driven by the protection- focused restricted-thinking informed by orthodox forest science, which generally ignores wider socio-cultural and political forces that influence forestry problems and solutions. The paper therefore highlights the need for rethinking the policy making and implementation processes in the Nepalese forestry sector.