Nepal’s government policy recognizes Non-Timber Forest Product (NTFP) enterprises as one of the potential sectors to contribute to poverty reduction. In practice, however, there are only limited NTFP enterprises that have been successful in creating income and employment for the poor. Drawing on the experience of promoting NTFP enterprises in the Koshi Hills, this paper demonstrates that there are a number of regulatory issues and practical challenges related to the development of NTFP enterprises. Particularly, it identifies regulatory challenges that affect all key processes of forest-based enterprise management, including enterprise registration and operation, marketing and trade, taxation, and private sector investment. This is demonstrated through case studies and experiential narratives of the local stakeholders. Finally, the paper explores the direction of policy change and possible strategies. It is argued that the proactive involvement of civil society groups, including the networks of forest dependent peoples, is important in addressing the local level policy challenges as well as influencing national policy and regulations.