Agriculture and livestock are key components of the livelihoods of the poor. Livestock make a substantial contribution to household livelihood's and currently sustain the livelihoods of an estimated 700 million rural poor in developing countries. In Nepal, poverty levels are extremely high and more than 80% of the population relies on the agriculture sector for employment and income generation. In this context, it is important to be able to understand the link between poverty and livestock and the possible impact of livestock policies on the poor. The aim of the analysis presented in this paper is twofold: firstly, to gain an in-depth understanding of the features that characterize the poor in Nepal so as to determine the role livestock plays in and for household's income and income sources; secondly, based on the findings, set up household typologies related to livestock to be used to identify household groups within the country to better target specific livestock policies. The analysis presented is based on the data collected in Nepal during the 1996-97 Living Standards Measurement Survey (NLSS I). In conclusion the authors find that poverty in Nepal is mainly a rural phenomenon, where households mostly own land and livestock, and are extremely dependent on agriculture for household income. Livestock is found to contribute significantly to agriculture income both in the form of home production consumed within the households and agriculture cash income. The cash component proves to be especially important for the more isolated areas in which access to cash is very limited and for the landless households. This is leads to a call for policy makers to ensure that policies targeting livestock are put in place, since this will indirectly help the large portion of rural poor in the country.