Summary In India donors, governmental and non‐governmental organisations (NGOs) are currently investing heavily in participatory watershed development, yet with only partial success. Focusing on a community‐based watershed project in Rajasthan implemented by Seva Mandir, this article applies the tools of environmental entitlements analysis in a project evaluation mode to explore the effects of social difference on project experience and impact. Seva Mandir's investments in capabilities and social capital have successfully facilitated ‘community’ identity and action, across caste, class and gender differences, in the context of local political struggles. Yet natural resource management remains an arena of conflict: while certain stakeholders have benefited from soil and moisture conservation activities and the enclosure of commons, others — especially pastoralists and women — have faced high costs to their livelihoods.