In recent decades, there is a major shift in forest resource governance and management. Participatory forest management (PFM) approach has been promoted widely. However, the link between rural communities' livelihood dependence on forest resources and the likelihood of PFM success has been understudied. This study examines the contribution of PFM to improving rural livelihoods in Metema district, Ethiopia. A mixed quantitative and qualitative research design was employed. Quantitative data were collected from 180 randomly selected participants in three PFM groups. The survey data were supplemented with group discussions and key informant interviews. Results revealed that age is significantly associated with PFM membership. Other household (HH) socioeconomic characteristics did not affect the decision to be a member of a PFM group. The PFM members collect different non-timber forest products (NTFPs), and Frankincense (Boswellia papyrifera) income constitutes 9-25% of the members' annual HH income. The contribution of Frankincense income decreases from the lowest to higher quantiles. Statistically significant differences were also observed in Frankincense income between the PFM groups investigated (p = 0.05). Moreover, the findings revealed that PFM approach and hence the Frankincense production has played an essential role in poverty alleviation as demonstrated by providing regular income to PFM member HHs, reducing income inequality and serving as a safety net and income gap filling roles. Overall, the PFM approach in the study area contributes to the livelihood improvement of the members that could, in turn, create an incentive for better management of the dry land woodlands.