Nepal's hill region suffers from critical shortages of food, forage and fuelwood. The impact of this increasingly severe problem is being felt in terms of rapid environmental deterioration. The problems are manifold and interrelated. This study is designed to carry out a whole system planning which includes an environmental component. A watershed level management plan is suggested for Phewa Tal Watershed in central Nepal which considers interactions among resources and aims at reducing soil erosional problems. To seek decentralization in the planning process, a multi-level planning approach is used.