Despite sound logic supporting decentralized resource management, the results of community-based natural resource management (CBNRM) efforts have been mixed. Many conditions are thought to contribute to the sustainable use of common pool resources, but as practitioners evaluate the likelihood of CBNRM success, it is necessary to understand which particular conditions have the greatest impact and how these differ across contexts. This paper describes the harvest of the matsutake mushroom and its decline in two rural communities in Bhutan that possess many of the conditions thought to facilitate resource management. Data from surveys, informal interviews and focus group meetings suggest the decline in the matsutake harvest can be attributed to the absence of a small number of enabling characteristics and an additional factor that is often overlooked in the CBNRM literature. Factors contributing to the decline include environmental dynamics, lack of leadership, and the difficulty of monitoring and enforcing harvesting guidelines. However, communities are reluctant to absorb the costs of developing institutions owing to the lack of perceived scarcity and salience of matsutake and, perhaps most importantly, to a historical dependence on a paternalistic government. This reliance on the government may preclude communities from assuming the responsibilities of matsutake management and enforcing rules to assure a sustainable harvest, a trend seen elsewhere in Bhutan. CBNRM may succeed if governments can simultaneously build capacity in communities while empowering them to take ownership over resource management. Though a relatively small number of factors have impeded CBNRM in this case, many of the obstacles can be overcome and these efforts should be considered a work in progress in Bhutan.