Forests are important to the livelihoods of hundreds of millions of people in developing countries. This study contributes to the emerging body of quantitative knowledge on the economic importance of forests to rural households through a study in the Nepal Himalaya. Qualitative contextual information was collected in six villages, followed by a structured household (n =180) survey that included four quarterly income surveys. The average forest income share of total annual household income was 22%, ranging from 12 to 31%. For all income groups, the level of forest income exceeded (except for livestock income for the most well‐off income quartile) income from each of agricultural products and livestock products. In absolute terms, the level of forest income increased with total income. Forest income mainly supports current consumption. Determinants of household absolute and relative forest income were available labour, education, and location. The number of livestock units and degree of debt had positive effects on absolute forest income, while the size of remittances and savings had negative effects on forest dependency. Income diversification was the norm for all income groups. There is also clear evidence of differential income diversification both across and within income sources. The consequences for policy‐makers are briefly discussed.
