Products obtained from forests or other natural environments play a crucial role in sustaining the livelihoods of poor people in developing countries through income generation and the creation of employment opportunities. Although studies have been carried out to evaluate the dependence of local livelihoods on environmental products, quantify the linkage between poverty and biodiversity, and assess the impacts of resource depletion on household economics, most have been focused geographically on the tropics. Our study was conducted in the mountain village of Jumla, Nepal, to quantify the economic contribution of Chinese caterpillar fungus Ophiocordyceps sinensis (yarsagumba) to local households. Income from yarsagumba accounted for up to 65% of the total household cash income, on average, and its contribution was highest in the poorest households. It contributed to reducing income inequality by 38%, and the income was utilized to purchase food and clothes, celebrate festivals, pay for medical treatment and children's education, and for savings. There was a mean annual decline of 25 pieces in the per capita harvest of yarsagumba during 2010–2014. However, the decline had no adverse impact on household income, as the price increased.