Improved governance of natural resource use is critical to the sustainability and maintenance of environmental quality. In western Nepal, unsustainable resource extraction is seen by the local community as a major threat to forest sustainability. While most respondents to a survey of 243 households inside and outside a protected area (PA) thought the laws for managing resource use were adequate and appropriate, a far smaller proportion thought they were achieving their objectives. Disenchantment with the existing governance regime was strongest outside the PA, probably because there was greater investment in community engagement within the PA. The most likely reason for this failure is the deeply embedded corruption within the forest governance system. Devolution of power to local communities by increasing governance participation is one of the most likely means of containing corruption. It was therefore not surprising that governance participation was rated as the most important governance principle by respondents in a best–worst scaling experiment. Respondents also regarded effectiveness, accountability and transparency as important governance principle to improve management of forest resource extraction from red panda habitat.