Despite widespread participatory governance reforms in the forest sector in Nepal, how forest administration can be re-organised at multiple levels to enable community based forest management remains unexplored. Forest governance reforms in Nepal have involved numerous forms of collaboration and contestation between the state agencies and community-based forest stakeholders in the rapidly evolving federalist political context. Analysing an empirical case of community forestry in Nepal, this paper shows how state agencies and communities interact in the process of controlling and managing forest resources. It is argued in the paper that instituting deliberative processes in multi-level governance structure is a key to the functioning of a well-devolved forest governance. With the nation already adopting a new federal system of governance, it is crucial to clearly define the authorities of the federal, provincial and local level administrations. We also argue that the need for creating institutions and spaces for deliberative engagement between forest dependent community groups and the public administration is at an all-time high for achieving accountability and more effective forest governance. The future of Nepal's forestry and people living around forest resources depend to a large extent on how powers are shared by different levels of governments, and how these governments interact with one another, and with people and civil societies in their respective domains of governance. HIGHLIGHTS •Governance becomes effective and consequential if there is some level of deliberation between citizen groups and units of the public administration. •Forest governance reforms in Nepal have involved numerous forms of collaboration and contestation between the state agencies and community-based forest stakeholders in the rapidly evolving federalist political context. •No signs of participatory governance lessons of the past being capitalised into the process of crafting federal forest governance structure to resolve the potential conflict between user groups and local government, and between forest administration and local government have appeared. •There is still a hesitation on the part of forest administration to accept the constitutional mandates regarding transfer of powers to the local level, and much of federal reform works do not recognize the importance of ensuring deliberative interactions between citizens and the public administration at different levels. •It is important to foster the cross-scalar dialogue among the public administration, citizen groups, and the political leaders to discuss and agree on structure of power distribution across different levels of governance, and also agree on frameworks and principles of cooperation among the federal, provincial and local layers of governance. .