This paper stresses the importance of community-based forestry for the conservation of natural resources and alleviation of poverty in upland Yunnan. In contrast with state-managed forests, which account for the bulk of forested land in many countries, including China, community-based forestry is a decentralized form of forestry which empowers local people to manage and establish forests. Community forestry can take many forms. It can involve forestry, including agroforestry, on the private land of individual villagers, or it can entail communal or social forestry, for example, the communal establishment and management of forests on wasteland, or oil degraded land.This paper stresses two elements which are the focus of much contemporary research; (i) the state of the environment, and (ii) the significance of institutional structures for economic decision-making and the optimal use and conservation of resources. Decentralized governance structures linked with appropriate economic incentives to local communities can be a powerful force for improvements in decision- making about resource use and conservation. Nevertheless, they should not be regarded as a panacea for effective governance. The situation is more complicated than some advocates for the empowerment of local communities realize.