Demand-driven agricultural production is unsustainable in Nepal since it is destroying the land base through soil erosion. The forests are also degrading from excessive fodder lopping (excising branches with leaf material) to feed farm animals. This study suggests an alternative for agricultural production, which minimizes environmental problems without impairing the present economic interests of the farmers. The study was conducted in the low-income, food-deficient, environmentally fragile hill district of Dhading in Nepal. A lexicographic goal-programming model was employed to generate an alternative plan that minimizes the environmental impacts relating to soil erosion, cattle grazing, forest fodder lopping, and use of inorganic fertilizers, and pesticides. Food-grain production, milk production, and returns to fixed farm resources are maintained at least at existing levels in the alternative plan. For delineating relationships between farm production and environmental problems, production of these commodities is hypothetically targeted at successively higher levels. The results indicate that the levels of environmental problems, except those from use of inorganic nitrogen fertilizers, are considerably reduced in the alternative farm production system. The alternative crop plan proposes the total exclusion of corn and oilseed crops and a marked decrease in the area under main season paddy rice. Instead, the areas under early paddy, upland paddy, wheat, pulses, and fodder crops would increase. The livestock plan suggests a decrease in the number of bullocks required, due to modification of the crop plan and sharing of bullocks among neighboring farmers. Replacement of cows by buffaloes for milk production is also proposed. Increasing food-grain production is more damaging to the fragile hill ecosystem than an equivalent increase in milk production.