To enhance the diversification of rice varieties for the specific needs of farmers through a participatory varietal selection (PVS) approach, four pre-release and one released chaite rice varieties were distributed in 20 villages of the Western Hills of Nepal in 1991. A survey conducted during June 1993 found that varietal diversity increased in all locations and in 80% of the study area at least two new rice varieties were reported where only CH 45 was grown before the distribution. On-farm varietal diversity was further enhanced by farmer-to-farmer dissemination of new rice varieties. All the rice varieties tested were adopted, but the adoption level varied between locations. Of the households surveyed 37% were growing the new rice varieties and a further 57% were aware of those varieties within two years of introduction. The PVS approach provided farmers with the benefits of new genetic materials five to six years in advance of the formal system and with minimum effort. Institutionalization of the PVS approach and the use of the farmers' network of information and seed exchange, involving relevant grassroots level institutions, can improve the effectiveness of the variety evaluation system.