Forest-Based Micro and Small Enterprises (FMSEs) are a major source of income for both rural and urban areas of most developing countries, and Nepal is no exception. Though not given enough priority compared to large scale enterprises, FMSEs have contributed substantially to supporting livelihoods of marginalized and low income people by generating employment opportunities throughout the developing world. FMSEs provide employment to a large number of rural people in Nepal who have limited access to other off-farm employment opportunities, however, they are not growing well due to the ineffectiveness of enterprise promotion activities. Different enterprise promotion approaches are being implemented in Nepal by External Development Agencies (EDAs) in collaboration with local Community Based Organizations (CBOs). In this review, we analyzed the effectiveness of existing FMSEs' intervention approaches followed by EDAs, current status and constraints, and possible scopes of FMSEs in Nepal with reference to other developing countries. Five implementing approaches that are currently adopted by EDAs in Nepal have succeeded in the promotion of FMSEs to some extent. However, those approaches do still need to be improved in order to fully suit local contexts. In this respect, we suggest Integrated FMSEs Development approach for Nepal and other developing countries coupled with some recommendations.