This study analyzed the spatial and temporal changes in land use between 1978 and 1992 in a typical watershed covering 543 km² in the Middle Hills of Nepal and used GIS to compare land use changes between village development committees (VDCs) with and without formally handed-over community forests during this period. The forest handover procedure followed the specifications of the national community forestry policy of Nepal. In the watershed, the total area of forested land (defined as high forest plus shrubland) declined by about 8% during the period. However, high forest increased over the study period, whereas shrubland cover declined. Between VDCs with community forests and those without, there were large differences in the rate of total forested area loss, with community forest VDCs losing less total forested area over the 14-year period. Moreover, in the group of VDCs with community forests, high forest area increased by 77%, in comparison with 13% for VDCs without community forests. Higher shrub loss in community forest VDCs was attributable to conversion into high forest via plantation establishment and natural succession. The results of this study indicate the positive impacts of Nepal's community forestry activities on the extent of forest cover.