The mountainous country of Nepal is rich in cultural, environmental and biological diversity. Out of 14.72 million ha total land area, forest covers about 29 percent with an additional 10.6 percent of shrub land, both categorized as forest land. Forest area in the hilly region alone occupies about 26.1 percent of total forest area. Forest contributes over 70 percent of rural energy requirement and about 42 percent of livestock feed in Nepal. Most of the people living around forest fringes are subsistence farmers. Agriculture contributes about 78.5 percent of the total employment in the country. Because of heavy dependency of people on forest, expanding agricultural lands and development of infrastructures, the forest area has decreased at an annual rate of 1. 7 percent between 1979-1994. Since the inception of Community Forestry Programme in the late 70s, and the introduction of Conservation Area and Buffer Zone Management Programme in the late 80s, and the poverty reduction focused Leasehold Forestry Programme in 1993, the levels of awareness and participation in conservation and management of forest resources have been increased. As a result, community forestry has been a successful model in natural forest management. To date, about 1.3 million farming households are engaged in managing about one million ha of state forest as community forests, deriving daily needed forest products and also collecting and marketing high value non-timber forest products. Likewise, 1600 smaller groups of different communities are engaged in leasehold forestry activities, mostly concentrated in agroforestry, conservation farming, livestock raising and other income generation activities. Although Forest Policy of Nepal has been ever-evolving through the experience and consultative process with its stakeholders, both from government and non-government sector, the sector as a whole is facing several new challenges and suffers severe technological, financial and human resource related problems. A wide gap between technology generation and its effective dissemination is evident. More focus on generation, verification and dissemination of appropriate technologies to suit rural communities for the management and sustainable utilization of the natural resources is needed.