Global initiatives to promote large-scale forest landscape restoration (FLR) require adaptive approaches that are consistent with locally relevant models of land use management. Nepal’s experience in FLR provides lessons for programme design with potential broader relevance to the Himalayas more generally and to other regions featuring similar upstream–downstream interactions that reflect the requirement of locally appropriate economic incentives for achieving change. The paper analyses land cover change over four decades (1975-2015) from satellite images and evaluate the status of ecosystem services (ES) and benefits delivery from community-based FLR (CBFLR) through community perception and expert’s opinion in the Phewa Lake watershed. Results reveal a substantial reversal of land degradation and forest recovery (12.1% of the total watershed area) due to the CBFLR that impact to increased delivery of a range of ES. Notably, while water discharge rates may have decreased following the increase in forest area, siltation has been reduced, protecting water quality in the lake and benefiting local economic development.