Policies in Lao PDR encourage farmers to transition from shifting to sedentary agriculture, and the conversion of 'degraded' forest to agricultural and plantation concessions. As access to natural resources becomes increasingly contested in these contexts, it is helpful to better understand the economic value of environmental resources, including 'degraded' forests, for rural livelihoods. The 'environmental income' from these environmental resources remains underappreciated, in part because of methodological limitations, and is reflected in policy decisions favouring conversion of this natural capital to various forms of agricultural concession. This study draws from immersive fieldwork in four villages in Lao PDR to provide more rigorous evidence about the value of natural capital to rural households. Results show that environmental income was important to all wealth classes of rural households, averaging 23% of total annual household livelihood income. Our findings are consistent with global assessments, help explain why rural Lao people contest development that compromises the natural capital from which they derive environmental income, and emphasise the importance of recognising environmental income in land use and development policies and programmes in Lao PDR.