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This paper reviews the evolution of forest policies and forestry institutions in Nepal and tracks the accompanying trends of change in the country’s forest cover over the last century. Our objective is to provide an essential foundation to the policy reform process that is underway in Nepal and many other Asian countries. The review shows that before 1957 the Nepalese government’s focus was on conversion of forestlands to farmlands, and extraction of timber for export. After the nationalisation of the forests in 1957 until 1976, policy-making efforts were oriented towards national control of forests through stringent laws and expansion of the forest bureaucracy. This approach failed as evidenced by widespread deforestation and forest degradation across the country during the 1960s through 1980s. Early efforts of the government and donor agencies to rectify the problem through reforestation and afforestation also largely failed, but these efforts paved the way for subsequent initiation of the participatory approach to forest management in the late 1970s. Since then, community-based forest management evolved continuously under the aegis of supportive forest policies and legislations. The present community forestry program has met with notable successes in some areas. However, the program has been confronted with some contentious issues in recent years including a policy debate over the suitability of forests in the southern lowlands (the terai) for community management and sharing of income obtained from community forests. These and some other issues surrounding the community forestry program are discussed and their implications for designing or improving future forest governance have been identified.

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In the context of an ongoing debate on the type of institutions or tenurial arrangements that are appropriate for the sustainable management of common pool resources (CPRs), this article examines the role played by local institutions in determining the conditions of two forests located in the Middle Hills of Nepal. The institutional robustness of the forests' governance systems is evaluated using Ostrom's (1990) design principles that characterize the configuration of rules devised and used by long-enduring CPR institutions. The findings show that the two forests are different in level of historical degradation as well as present condition, and these differences are generally explained by the structural characteristics of the local institutions governing the forests. The analysis indicates that Ostrom's design principles are useful for analyzing institutional robustness of local forest governance systems. However, some of the principles need modification or expansion if they are to be prescribed for forestry situations.

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