Abstract: Forest resources are one of the most overexploited natural resources in Uganda. In order to protect forest resources from such overexploitation, collaborative forest management approach has been adopted by the National Forestry Authority with emphasis on local community involvement. This study examined the level of net economic benefit received from forest produce and it to investigate whether there was a positive effect in poverty reduction. The study further attempted to examine the effects of poverty on the environmental integrity through CFM progrmme in two parishes of Ulukusi and Mutshet, surrounding Mt. Elgon National Park. Using non-parametric statistics, the local community livelihood index was examined on a sample size of 120 respondents. A Cost-Benefit Analysis was applied to estimate the distribution impact and poverty reduction impact. The findings of this study revealed that there was a significant change in livelihood as well as forest conservation status. The income distribution impact analysis showed that the poor people benefited substantially from the collaborative forest management program. The Poverty Index Ratio (0.95) suggest a positive indication of poverty reduction impact. It was found that the involvement of rural poor could be a process of poverty-environment interaction. The collaborative forest management approach is useful to increase the interaction between rural poor and resource management towards environmental sustainability.