There is a current trend towards decentralization of forest management, particularly among developing nations. Nepal has taken a lead in initiating innovative policies of community forestry. Although these initiatives have been largely deemed successful in the mountains, within the Terai lowlands, there is considerable debate about their outcomes. This research evaluates forest condition within recently declared community forests, national forests and protected areas in the Nepal Terai, using plot mensuration techniques and interviews with local users. The initial condition of forests that were handed over to local communities for use was significantly poorer than those retained as national forests. Protected areas had the highest levels of plant abundance, biomass and biodiversity, which is not surprising, given the level of funds and manpower input to managing these limited areas. In the context of current controversy about the outcome of community forestry in the Nepal Terai, the poor initial condition of forests handed over to local communities is highly significant, and needs to be factored into evaluations of community forest management. This research underscores the need for benchmark studies for evaluating the future outcomes of forest policies in the Terai, provides a valuable addition to the limited information on forest conditions under different management regimes in Nepal, and indicates some of the difficulties that local communities face while dealing with community forestry in practice.