In view of the ongoing watershed degradation and its adverse impacts on the biophysical and socio‐economic environment in the Hills of Nepal, this paper analyses its causal nexus and assesses the status of common and private properties based on afield survey in the Upper Pokhara Valley. Contributing fresh evidence of cause and intensity to the debate, the findings indicate that the mountain watersheds are undergoing degradation caused primarily by the mounting population pressure on forest and land resources, almost exclusive dependency of the hill people on agriculture as the source of livelihood, and changing national policies regulating the ownership of common properties. To address this problem, some broad policy measures are outlined within the framework of an integrated watershed management strategy.