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Amidst growing concerns about farmlands conservation, this paper examines the status of farmlands in two mountain watersheds ‘with’ and ‘without’ external intervention, located in the western hills of Nepal. Information was obtained from a household survey and group discussions conducted during April to September 1999. The severity of soil erosion from farmers' perspectives, density of landslides, soil nutrient balance and change in crop yield have been adopted as indicators of the status of the land. Results of the analysis indicate that land resources in both watersheds are undergoing degradation, though the causes and extent of degradation vary from one type of land to another. Upland crop terraces, locally called bari, are undergoing degradation most seriously under the combined influence of severe soil erosion, landslide and the depletion of soil nutrients. In particular, soil erosion has severely affected nearly half of the upland crop terraces in both watersheds due to a number of natural and anthropogenic factors ranging from weak geological structure to arable agriculture. Landslide and nutrient depletion have affected all types of farmlands except homesteads in both watersheds. Overall, the extent and intensity of land degradation is relatively high in the non-project area, as farmers were not provided with necessary technical and financial support. A broad strategy has been outlined for effective conservation of farmlands.