In view of the growing concern about the effects of human activities on the mountain environment of Nepal, this study examined the land use and management systems and their environmental effects with reference to a small watershed. It was shown that farmers had used cropping diversification, mixed cropping, cropping intensification and agroforestry to cope with the problem of food shortage arising from their marginal landholdings. They had terraced virtually all of their farm plots and applied compost/manure regularly, though in inadequate amounts, to control soil erosion and maintain land productivity. Nevertheless, farm lands on the ridges were undergoing unsustainable rates of soil erosion and soil nutrients depletion due to frequent hoeing and ploughing of lands, application of inadequate amounts of organic fertilisers, lack of mulching, and fallowing of lands for too short a period and without any vegetation cover. Soil erosion was not an acute problem in river valleys, as lands were flat and terraced, but lands were undergoing degradation owing to an unsustainable rate of removal of soil nutrients. Non-amble agriculture using biological soil fertilisation, including legume cultivation and compost application, could conserve soil in suitable locations and sustain the mountain environment.