Lack of combined forest productivity and income studies means there is scant evidence for the sustainability of rural household-level forest incomes in developing countries. This study examines levels and patterns of forest increment, wood product extraction, and household-level incomes in three community managed forests in Nepal, using data from 240 permanent sample plots and a structured household survey conducted in 2006 and 2009 (n = 507 and 558, respectively). We find that analyses of sustainability need to recognize the complexity of forest stand utilization, and that there is considerable scope, by altering how existing local forest management rules are implemented, for increasing rural household forest incomes while keeping harvesting levels sustainable.