By combining qualitative and quantitative methods, this study analyses the issues of forest conservation and utilization in three forest users groups (Laglage Pakha, Bagbhanjyang and Pragatisil) from Nepalese community forestry, which is often considered as one of the most progressive examples of collective action of local communities in forest management. The findings from the case studies indicated that compared with the highly degraded forests, from which most community forests have started, the conditions of forests have significantly improved. However, the improved forests may not be ideal in terms of biodiversity conservation because of the communities being selective in retaining only preferred species. Further, there are limited benefits from the forests in terms of meeting the needs of local people and contributing to community development. This occurs for two underlying reasons: First, not all improved forests are at the stage to supply sufficient and suitable forest products to all forest users. Secondly, forests are underutilized as the harvest of forest products is far less than what is available. The powerful actors both within and beyond the local communities control the forest use to ensure conservation, thereby the poor users who are mostly dependent on forest resources, are worse off under community forestry. In order to achieve sustainable conservation and utilization of forest resources managed collectively by local communities, it is suggested that the genuine power to make meaningful decisions on conservation and utilization of forests should be devolved to local level, and further devolution is required within local communities.