Community forestry is a strategy to prevent further degradation and to maintain or improve site quality and productivity by handing over state-owned forests to forest user groups (FUG) for sustainable management. FUGs are entitled to collect fuelwood, grass/fodder, leaf litter and timber to meet their household requirements. Over-utilization may however conflict with biodiversity conservation targets and lead to soil degradation in a long run. In the present case study, indicators of biodiversity, soil status and tree nutrition are evaluated and compared for two forests under different management in the central mid-hills of Nepal. The Gaukhureshwar community forest (CF) and an adjoining semi-protected natural forest Thulo Ban owned by Dhulikhel municipality (MF) are under different management regime for 22 years now. Eight sample plots were laid out in each forest for conducting a forest inventory, a soil survey and to collect foliar and soil samples. Species richness, abundance, and diversity indices were calculated and physical and chemical properties of soils and leaf nutrient contents of the main tree species were analyzed. About 80% of basal area and forest biomass were dominated by two species (Castonopsis tribuloides and Quercus glauca) in the CF, compared to a more even distribution over more species in MF. Species diversity of the tree layer in CF was significantly lower than in MF whereas species diversity of the ground cover was higher. Reduced input of organic matter to the soil due to biomass extraction by forest users is a likely cause of significantly lower soil C and N contents, higher soil bulk density, reduced base cation contents and lower foliar nutrient contents in the CF. From a ranking of these indicators along field estimates of indicators for disturbance, thresholds for the intensity of biomass extraction can be recommended to improve sustainability of CF management.