Australia’s sustainable forest management framework provides five indicators to guide the assessment of forestry regulations. In this paper, we use these indicators to assess the legal, institutional and economic support for sustainable forest management principles in the Western Australian native sandalwood (Santalum spicatum) industry. We identify a range of regulatory barriers and risks. Key concerns include a potentially unsustainable harvest quota, short-term funding for regeneration initiatives, practical impediments to the detection of illegal harvesting activities and an overreliance on industry goodwill to ensure support for the interests of Aboriginal people. We also identify important innovations and opportunities. These include certification schemes and increased institutional support for regeneration, agroforestry and the inclusion of Aboriginal people in industry supply chains. We conclude by considering the future role of law and policy in securing the principles of sustainable forest management in the S. spicatum industry.