Natural resource conservation and development programs across the developing world have recently emphasized the devolution of natural resource management to local communities. This is posited to benefit both communities and natural resources, but those benefits may depend on the community’s capacity to capture value added, e.g., through vertical integration enabled by community sawmills. Focusing on community forest enterprises (CFEs), which manage forests communally for timber that is sold on the market, we test the hypothesis that greater vertical integration, proxied by government-defined categories and by the presence of community sawmills, is protective of forests. We use detailed spatially explicit panel data from southern Mexico that allow us to focus on land use change (deforestation and forest regrowth) separate from temporary change in tree cover within forest areas. We find that vertical integration of CFEs as indicated by the presence of community sawmills reduces deforestation while increasing forest regrowth. Results are broadly consistent using the government’s classification of the CFE’s forest management operations. Our results have important implications for policy design, given the recent trend towards the recognition of customary communal rights and the devolution of natural resource management to communities.