PES markets create opportunities to address environmental problems on a local scale through negotiations with stakeholders: communities that are in a position to provide an ES receive compensation from those who benefit from this service. This type of direct environmental management has the potential to set up effective systems of price setting, which can be especially beneficial in developing countries with weak histories of environmental governance. The objective of this paper is to discuss whether upland communities in mainland SEA have a suitable structure to establish PES at the local scale within the community. Data collected from two case studies in Northern Thailand and Lao PDR, are used in this purpose. The main findings of the study are summarised as follows: (i) the stakeholders’ perception of their rights on land is critical to implementation of PES, irrespective of the actual rights which support this perception; (ii) WTP is very low among local stakeholders, making any PES market unlikely to emerge without external support; (iv) the classical scheme for watershed services hardly apply in its original form at small scale because of the fuzzy difference between potential ES providers and receivers; (v) when upland stakeholders are perceived as wealthier than the lowlanders, the latter have no WTP for ES provided by the former; (vi) good governance, including a strong web of relationships at various levels between people and the authorities is a strong prerequisite for a PES market to be established, even without direct government funding.