In spite of the impressive scale of community forestry in Nepal over the last three decades, and its apparent benefits in terms of improved forest condition, there are concerns that the main economic benefits are not equally distributed and that the community forestry process perpetuates or even reinforces social inequity, economic and environmental injustice. This paper presents the findings of a study investigating the livelihood impact of community forestry in eight community forest user groups in the Churia part of the Terai region. Impacts were found to be very variable within and between user groups and not easily explained by any single factor. A general finding, however, was that, community forestry shifts benefit flows from individual households to the community level. This means that promotion of fair representation and active participation by the poorest is needed to ensure that they gain access to the new community-level decision-making fora and the resources managed at this level.