Enforcement of the law is the most widely practiced strategy to prevent illegal logging in tropical developing countries, though the efficacy of such practice has often been questioned. We examined the effectiveness of forest law enforcement and different forms of economic incentives to curb the activities of illegal loggers. Thirty households, both with and without economic incentives, were interviewed in 2007 and 2009 in two protected areas of Bangladesh, namely the Lawachara National Park and the Satchari National Park. The enforcement of customary forest law appears to have very little ability to tackle illegal logging, whereas different alternative income-generating options designed to influence the livelihoods of illegal loggers are revealed to be very useful because such initiatives were found to have considerably reduced both the number of illegal loggers and the frequencies and amount of timber harvested illegally in both sites. Interestingly, illegal loggers responded most positively when they found themselves much closer to forests with clearly defined rights and responsibilities. Securing development of local forest users with tenure rights and greater access to alternative income-generating options, market regulation, and institutional and regulatory reform are critical to control illegal logging and to guarantee the sustainability of declining forest resources.