Native forests are shrinking worldwide, causing a loss of biological diversity. Our ability to prioritize forest conservation actions is hampered by a lack of information about the relative impacts of different types of forest loss on biodiversity. In particular, we lack rigorous comparisons of the effects of clearing forests for tree plantations and for human settlements, two leading causes of deforestation worldwide. We compared avian diversity in forests, plantations and exurban areas on the Cumberland Plateau, USA, an area of global importance for biodiversity. By combining field surveys with digital habitat databases, and then analyzing diversity at multiple scales, we found that plantations had lower diversity and fewer conservation priority species than did other habitats. Exurban areas had higher diversity than did native forests, but native forests outscored exurban areas for some measures of conservation priority. Overall therefore, pine plantations had impoverished avian communities relative to both native forests and to exurban areas. Thus, reports on the status of forests give misleading signals about biological diversity when they include plantations in their estimates of forest cover but exclude forested areas in which humans live. Likewise, forest conservation programs should downgrade incentives for plantations and should include settled areas within their purview.