Reducing poverty through equitable and sustainable community-based natural resource management, particularly through programmes that accord attention to the issue of social inclusion, is the major objective of development projects related to natural resource management. At the local level, many innovations have been developed and are being put in place to enhance the pro-poor approaches, which specifically focus on the issues of livelihoods and inclusion. Livelihood Improvement Process (LIP) is one of the innovations arising to address this end. This paper presents the concept, process of implementation, and impacts of the LIP, as well as the opportunities and challenges it faces based on the experiences gained in Kabhrepalanchok and Sindhupalchok districts of Nepal. It concludes that the LIP can be an appropriate tool for reaching the poor, as it helps to sensitise and inform all actors about the need of pro-poor and inclusive development process. Key Words: community forestry, livelihood improvement process, social inclusion, governance doi: 10.3126/jfl.v5i1.1980 Journal of Forest and Livelihood 5(1) February, 2006 pp.46-52