In order to create sustainable conservation policies for biodiversity, it is imperative that participatory forest management (PFM) be assessed. Forests contribute to the sustainability of the planet by controlling soil erosion in agricultural areas and by moderating the effects of climate change. However, Ethiopia's forest resources have been under intense pressure because of the increased demand for wood products and agricultural conversion. As one of the potential solutions, the PFM programme was implemented in 1990. This study set out to investigate the effects of the PFM programme on land use and land cover (LULC) in the Alle district of southwest Ethiopia, as well as the variables influencing community involvement and the obstacles to PFM implementation and community involvement. Changes in forest cover were detected using Landsat images from 1992, 2012, and 2022 obtained from Thematic Mapper (TM), Enhanced Thematic Mapper (ETM+), and Operational Land Imager (OLI). Images were obtained during the dry season and were cloud-free. A total of 240 respondents were chosen by means of a straightforward random sampling technique, and survey data were collected using questionnaires, interviews, and field observations. Data were analyzed using ArcGIS 10.5, ERDAS Imagine 2015, SPSS version 20, and Excel 2010. The change in forest cover shows an increasing trend from 2012 to 2022. Again, grassland and wetland coverage in this study decreased rapidly. In the years 2012–2022, forest land increased from 462.7ha (74.8 %), to 569.8ha (92.1 %), while, the agricultural land, grassland, and wetland were reduced from 109.5ha (17.7 %) to 37.8ha (6.1 %), 31.9ha (5.2 %) to 0.0ha (0.0 %); 14.1 ha (2.3 %), to 10.8 ha (1.7 %) respectively. There have been beneficial developments in the forests over the last 30 years. The binary logistic regression model disclose that, land ownership had a negative impact on forest management participation, while other factors such as gender, education level, family size, TLU, access to credit, training, and law enforcement had a positive and significant (p < 0.05) effect on PFM practices. LULC change in study area causes rapid wetland ecosystem deterioration, which may result in the extinction of the most significant and ecologically valuable species and a loss of biodiversity in the environment. In this context, developing an integrated participatory approach requires rapid attention, and all farmers and stakeholders must be actively involved in PFM programs.