This paper examines the impact of community forestry on forest resources, based on a study of 11 Forest User Groups (FUGs) in Nepal over three years. The findings confirm that the impact on forest resources has been very positive. Prior to the formation of FUGs, forest resources at almost 75% of study sites were deteriorating, and now all are improving to a greater or lesser extent. However, there is a great complexity of situations on the ground and various weaknesses in the process which need to be addressed, especially forest boundary conflicts, inequity within FUGs due to low participation of poorer households in decision- making, and the prevalence of 'passive' forest management.