This study was carried out in Letpanbin and Myaing community forests, Ywa-ngan Township, Shan State, Myanmar. The objectives were to examine the contributions of home garden and community forestry to the rural development, and to investigate the plant species diversity of community forests established in the watershed areas. Rapid rural appraisal (RRA) and forest inventory were used as the main methodologies of the study. The average fi nancial value of forest products annually collected and utilized from community forests by a household of Letpanbin and Myaing were 355,500 Kyats (US$ 444) and 363,000 Kyats (US$ 454), respectively. On the other hand, the annual contribution by community forests amounted to about 33 percent of the total farming income, which is a major source of income, for each family in both villages. The species richness of Letpanbin and Myaing community forests (CF) were 75.72±5.88 and 101.20±13.29 whereas the Shannon’s species diversity indices were 3.93 and 3.99, respectively. Shannon’s evenness of Letpanbin and Myaing CFs were 93% and 91%, respectively. There were 3336 (±850.83) and 3661 (±734.15) seedlings per ha while 2588 (±682.54) and 3208.13 (±777.91) saplings per ha in Letpanbin and Myaing CFs, respectively. In Letpanbin CF, Pyinma (Lagerstroemia speciosa) occupied the highest important value index (IVI) (15.90%) while Monn (scientifi c name not available) (16.89%) in Myaing CF. The coeffi cients of similarity (Ks) showed 50.33% between two forests in terms of fl oristic composition. Thirty-eight species were found as common species in both CFs. The people’s participation in community forest management was the major factor in achieving watershed conservation in the study area and it should be mimicked to the other rural areas for the environmental conservation and rural development.Key words: community forests, homegarden, stand structure, tree species diversity, rural development, watershed areas