Land-use change has important implications for sustainable livelihood of local communities where traditional crop–livestock mixed farming is sustained with local inputs. Knowledge of recent changes in land use, driving forces and implications of changes within the context of sustainable development is limited. This study analyses the changes in spatial patterns of agricultural land use, crop diversity, manure input, yield, soil loss and run-off from cropland, and dependence of agroecosystems on forests, during the 1963–1993 period in a small watershed in central Himalaya, India. Data obtained from existing maps, interpretation of satellite imagery, geographic information system (GIS) based land-use change analysis, participatory survey and field measurements were integrated to quantify changes at the landscape/watershed scale. During the 1963–1993 period, agricultural land use increased by 30% at the cost of loss of 5% of forestland. About 60% of agricultural expansion occurred in community forests compared to 35% in protected forests and 5% in reserve forests. Agricultural expansion was most conspicuous at higher elevations (1800–2600 m) and on medium slopes (10–30°). Cultivation of buckwheat (Fagopyrum esculentum L., Fagopyrum tataricum (L.) Gaertner), hogmillet (Panicum miliaceum L.) and foxtail millet (Setaria italica (L.) Beauv.) was abandoned. Potato (Solanum tuberosum L.), a cash crop, completely replaced the abandoned crops and partially replaced many other traditional crops. Soil loss, run-off and manure input related to potato cultivation was much higher compared to other crops. Mean annual fodder yield from cropland declined by 44%, while manure input, soil loss and run-off increased by 46, 90 and 51%, respectively. Changes in land use and management have improved household income but at the cost of increase in intensity of biomass removal from forests and loss of forest cover. As farm productivity is dependent on forests, continued depletion of forest resources will result in poor economic returns from agriculture to local people together with loss of global benefits from forest biodiversity and ecosystem services. Policy support for sustainable income from forests to local people as well as technologies enhancing agricultural productivity through conservation of traditional crop diversity and efficient resource recycling within agroecosystems is needed for sustainable livelihood of local communities together with global benefits from the Himalayan forests and ecosystem services.