Brazil’s Amazon region is a major producer of tropical timber. About one-quarter of this timber is from smallholders (farmers and forest-based communities), who have been designated approximately 50% of public forests in the Amazon for community sustainable use (mostly in the form of government settlements for smallholders, sustainable use conservation areas, and indigenous territories). Approximately one-third of the timber produced in the region is illegal. In the state of Pará, a top producer of logs in the region, a recent study1 found timber harvesting was illegal in 78% of the forests logged, and that 25% of forests logged (by area) were in smallholder settlement projects (where family allotments are approximately 100 ha each and 80% must be maintained in forests, with some exceptions). We argue that a combination of major policy and institutional changes over the last decade, which were designed to reduce logging pressure on settlements, and lax law enforcement are partly responsible for encouraging illegal logging, especially in smallholder settlements. Recent changes have reduced bureaucratic barriers to legal forest harvesting activities among smallholders, but much more needs to be done to bring illegal logging under control and to support sustainable forest management among smallholders.