Traditional communities living at forest margins use forest resources in various ways. Understanding the resource-use patterns of such communities provides a basis for seeking the participation of such communities in forest conservation. The present study undertaken in the Mudumalai Wildlife Sanctuary and the adjoining Sigur Plateau in the state of Tamil Nadu, India, addressed the importance of forests in the household economy of indigenous communities. Its main objective was to quantify the forest dependence of local people, and assess to what extent restrictive biodiversity conservation strategies would affect their livelihoods. These questions help in understanding the stake of the people in forest conservation strategies. Economic activities of the households were investigated in eight selected villages, four of which (proximal villages) had access to reserve forest areas where collection of forest products was allowed and were also located close to markets that provided opportunities to sell forest products. The remaining four villages (distal villages) were close to the Wildlife Sanctuary where the collection of forest products was not allowed and there was no access to organized markets. A total of 132 households were surveyed. The households both in proximal and distal villages were classified into three distinct income groups namely ‘low’, ‘medium’ and ‘high’, based on their gross annual income. Use of forest resources in Mudumalai was found to be influenced by multiple factors. In terms of livelihood of the traditional communities, livestock rearing and collection of non-wood forest products (NWFPs) were very important, the latter both for cash income and subsistence use. Peripheral communities used the forest resources in a varied fashion, with NWFPs contributing differently to different income groups. Where there was no restriction on forest use, higher income groups used the resources more heavily than lower income groups, and hence would suffer most from any restriction on forest use. People's reliance on forests evidently declined with increased level both of education and of opportunities in non-forestry vocations. Forests were still very important to the household economy of the local people both in terms of food security and cash income.