This paper describes the major characteristics of Nepali small farm production systems with particular reference to livestock and their feed supply. The current and potential contributions of the livestock sector to human welfare, to household income, to food security and to overall biodiversity are also assessed. Nepal’s animal genetic resources are extremely diverse (at least 17 species) and have multiple functions. They are yet to be fully characterized but the received wisdom that they are unproductive and of inferior genetic merit is not founded on comparative research or on the several production objectives (including adaptability to the local environment) for which animals are kept. Research in the past has been along classic lines, carried out on station and not always related to the real problems of small farmers. Future research areas should be identified in collaboration with farmers and the extension services, should be mainly applied and adaptive in nature and should be carried out in collaboration with farmers on their farms (On Farm Technology Testing) as well as on research stations.