A research entitled Prospects of Agrobiodiversity Conservation by Ethnic Communities was undertaken with the objective to prepare an inventory of cultivated diversity of plants and animal species by the ethnic communities and their use in farming and in sustaining the livelihoods. The field work was carried during May to October 2011 in Udayapur district of Nepal. The study has been mainly based on the primary sources of data collected from the field. The findings of this study justifies policy interventions to explicitly recognize the potential of traditional knowledge of biodiversity conservation of rural ethnic communities and to incorporate them in development plans and policy making that affects the livelihoods of such ethnic rural inhabitants.