The main forest management strategy of Nepal, community forestry, is based on people's participation and was formally introduced in 1978. Under the community forestry structure, local people make decisions regarding forest management, utilisation, and distribution of benefits from a forest; they are organised as a Community Forest User Group (CFUG). Presently, about 1 million ha of forest are under the control of about 13,000 CFUGs. The present article gives an overview of the status of community forestry and its features in Nepal and analyses the institutional arrangements of three CFUGs from different parts of the country. The collective institutional arrangement is a legally supported approach in community forestry. It was found that the CFUGs have developed alternative institutional arrangements to this approach, ie private and centralised systems. As the case studies show, the practice of allocating limited use rights and protection responsibility to individual users as private property is decisive for the successful rehabilitation of degraded forests in the Churiya region. In the Terai region, centralised institutional arrangements are found to be the most appropriate option for the implementation of community forestry. In the Mid Hill region, from where community forestry originates, collective institutional arrangements are successful. These different forms of arrangement appear to be the best alternatives in the prevailing local situation. The findings suggest that various contextual factors in a community and their interaction affect the formulation of institutional arrangements. Successful groups are able to craft innovative arrangements well suited to local conditions. But common property resource models based on linear relations are not always sufficient to explain the dynamism of the interfaces between people's innovations and forest resources.