How forest income in Community Based Forest Management (CBFM), enters into peoples’ livelihood diversification strategies, income distributional profile, degree of dependency and variations due to contextual factors is unknown. This study was carried in Sunya, Lengatei and Dongo wards in Kiteto district from September to December 2008 to assess the impact of community based forest management on rural livelihoods. Livelihood framework was the main approach used. Data collection involved Participatory Rural Appraisal, household questionnaire survey, participant observation and focused group discussion. The study population was grouped into; poor, medium and less poor wealth groups. Descriptive and inferential statistics were used for quantitative data using Statistical Package for Social Science (SPSS version 12) and Excel. The inferential statistic analysis was used to determine the influence of household socio-economic characteristics on household income and how environmental incomes influenced by other sources of household income. Forest resource use dominated by fodder and firewood, improved after CBFM. Household income contributions were as follows; Agriculture 96.3%, environmental income 2.8% and non-farm, off-farms and remittances contributed 0.9%. Livestock owning was potentially a variable with respect to household asset. Total household income increased with increase in number of cattle and the relationship was significant (P<0.001). Lower income households registered lower earnings in agriculture than environmental income. Environmental income reduced income inequality, the Gini coefficient without environmental income in respective study villages of Sunya, Asamatwa, Lesoit and Olkitikiti was increased to 0.01, 0.01, 0.03 and 0.00 units respectively. The overall Gini coefficient increased to 0.02 units. Community’s perception on CBFM towards livelihood was generally positive. The study recommends; use of forest resources in CBFM to identify actual needs of the local community in regard to existingiii income category and social groups’ needs, improvement of existing livelihood options andNUFU through EKOSIASA Project