China has endeavored to devolve collective forests to individual households or user groups in the past decades. However, few studies have explored the community-level institutional selection process in the forest devolution reforms. Based on a longitudinal case study in Fujian province, this study focuses on China's forest devolution reform in the early 2000s and explores in the reform why the community allocated forests to groups of households rather than to individual households, which was the method preferred by the central government. The study also investigates the factors and mechanisms that influenced these institutional choices. The analysis indicates that, when a community is empowered to play a decisive role in institutional choices, the preferences of households may differ from the decisions made by -state-level actors. Three factors are found critical to the selection of user group management in the devolution reform: the difficulty of allocating physical forests equally to individual households, the decreasing dependence of livelihoods on forests, and the development of a forest rights market. We argue that forest devolution policies should recognize the multi-functionality of rural forests, their changing roles in local economic dynamics, the complexities of existing tenure systems, and the local demand for the autonomy of defining forest rights arrangements.