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<p>Community forestry in Nepal vests rights of access, use, exclusion, and management of national forestland to local user groups. There is strong potential for community forests to serve as the basis for improving the quality of life and the status of livelihoods in rural Nepal while conserving forest resources. Frequently, community forest user groups are dominated by local elites who choose to close access to community forestland for several years. As a result, forest conditions are improving, but the poorest households bear the cost of strict protection. In this paper I argue that community forestry is thus having rather limited success at improving rural livelihoods. Although community forestry is fairly successful at conservation, there remain huge wealth disparities between community forest member households, limited access to vital forest products, and significant power disparities within community forest user groups. Such conditions of inequity, reinforced by current community forestry policy and practice, severely challenge the development potential of community-controlled natural resources. In Nepal, overcoming these challenges may require a change in policy that mandates more inclusive local decision-making.</p>