Deforestation in the tropics is a critical issue that interacts with global environmental changes, and the mediating role of negative agricultural shocks is ambiguous. We investigate the impact of the massive epidemic of coffee leaf rust (CLR) that affected Central America from 2012 on deforestation in Mexico. CLR is a fungal disease that negatively affects coffee production. We exploit the gradual and random diffusion of the epidemic across coffee-growing municipalities and estimate a difference-indifference model. We find that deforestation increased by 32% in CLR-affected municipalities but we find no increase in agricultural land. Effects are driven by municipalities with low coffee yields, characterizing shade coffee systems, and states where rustic coffee systems were predominant. These results suggest that deforestation occurred within coffee cultivation areas and point out the concurrent role of government subsidies and incentives through the PROCAFE program, launched in 2014, that promoted the replacement of traditional coffee trees by CLR-resistant hybrids. We study the dynamic effects of CLR and exploit the delayed launch of PROCAFE to try to disentangle the impact of the epidemic from that of the policy response. Our results emphasize the vulnerability of agroforestry systems to exogenous shocks and suggest that PROCAFE, as a short-term response to CLR, contributed to increasing deforestation and accelerating the transition of Mexican traditional coffee landscapes to monoculture.