Integrated management of water and its watershed areas is an important agenda for efficient management of water resources. Traditional and local ecological knowledge learned over years of experiences by the farmers play an effective role in management of such watershed areas. Such knowledge and experiences are lost while being transferred over generations. This study is about such traditional and local ecological knowledge of forest management and deals with their role in watershed management. For the study, Sikhu khola catchment (1936 hectare) was selected from the upper hilly region of Nepal. Semi-structured questionnaire survey accompanied by focus group discussions and different formal as well as informal interviews were the major methodologies used for the study. This study has identified different socio-economic services and uses provided by the watershed area, then listed the traditional or local ecological knowledge of forest management that are important in securing watershed services and estimated their role in maintaining these watershed services.