The collapse of socialism in 1989 triggered a phase of institutional restructuring in Central and Eastern Europe. Several countries chose to privatize forests or to return them to pre-socialist owners. Here, we assess the implications of forest restitution on the terrestrial carbon balance. New forest owners have strong incentives to immediately clearcut their forests, resulting in increased terrestrial emissions. On the other hand, logging generally decreased after 1989 and forests are expanding on unused or abandoned farmland, both of which may offset increased logging on restituted forests. We mapped changes in forest cover for the entire country of Romania using Landsat satellite images from 1990 to 2010. We use our satellite estimates, together with historic data on logging rates and changes in forest cover, to parameterize a carbon book-keeping model for estimating the terrestrial carbon flux (above and below ground) as a consequence of land use change and forest harvest. High logging rates during socialism resulted in substantial terrestrial carbon emissions and Romania was a net carbon source until the 1980s. After the collapse of the Soviet Union forest harvest rates decreased dramatically, but since restitution laws were implemented they have increased by 60% (from 15.122 ± 5397 ha y − 1 in 2000 to 23.884 ± 11.510 ha y − 1 in 2010), but still remain lower than prior to 1989. Romania currently remains a terrestrial carbon sink, offsetting 7.6% ± 2.5% of anthropogenic carbon emissions. A further increase in logging could result in net emissions from terrestrial ecosystems during the coming decades. However, forest expansion on degraded land and abandoned farmland offers great potential for carbon sequestration.