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Trees outside forests (TOF) in Nepal's Terai have significantly increased over the past decade. The Chitwan District was one of the focus districts in the Terai Community Forestry Development Project that promoted a tree seedling distribution program. This paper examines the current position of tree integration on farmland and its contribution to livelihoods of rural households in this district. Interviews with local key informants, government and non-government agencies and wood-based industries, as well as an in-depth study of 32 households were used to describe the constraints faced by the households in management of trees on farmland. Most households cited disease, poor growth, lack of preferred tree species, lack of technical support, an uncertain tree market, and lack of financial support as constraints. Despite the important role of trees in subsistence and market-based rural livelihood diversification, and the consequent reduction in pressure on national forests from on-farm trees, current government policies and practices fail to recognise the value of these trees. It is argued that there is substantial potential for improving on-farm trees to enhance rural livelihoods. A responsive service mechanism centred on tree growing households would help the management of tree resources on the farmland.