The community forests (CF) in Nepal, facilitated by Community Forest User Groups (CFUGs), is widely recognized as an effective model of community-based forest management. Despite this recognition, there is a notable lack of comprehensive studies assessing the performance of CFUGs in sustaining community forests. Addressing this gap, this study examined twenty-two indicators across five performance criteria, such as user group management, forest management, financial management, livelihood management, and collaboration and networking management, within four CFUGs in central Nepal. Data were collected through household surveys (n = 275) and focus group discussions (n = 4), and indicators of performance criteria were assessed using a Likert scale. Reliability was measured using the coefficient of Cronbach’s alpha. ANOVA was employed to compare mean performance criteria across the four CFUGs, providing an evaluative perspective on overall CFUG performance. The findings underscored collaboration and networking management as high performers, showing an index value of 0.71, while user group management exhibited moderate performance with an index value of 0.56, alongside other moderately performing criteria. Noteworthy disparities were evident across the four performance criteria (p < 0.01), with the exception of collaboration and network management. Approximately 55% of the indicators were rated low to moderate, revealing CFUGs’ deficiencies in regular functions, limited uptake of adaptive and market-oriented management practices, minimal contributions to biodiversity conservation, insufficient capacity for forest revenue generation and mobilization, and restricted income generation and benefit-sharing with communities. The absence of timely and pertinent actions further stifled interaction between CFUGs and community forests, undermining the potential for revenue generation, job creation, and collective actions essential for productive community forest management. Prioritization of the indicators based on the performance index value offers critical policy direction to ensure CFUG sustainability and augment participatory management of common pool resources. Strategies to address identified weaknesses and build on strengths are essential for the success of Nepal’s community forests.