The present paper is based on primary data collected from a sample of 40 households arround watershed project site at Fateh Jang in Pothwar region. The inter-linkage of livelihood assets and poverty is determined by employing poverty score card technique. The poverty status of household was highly correlated with the livelihood sources (P<0.01), water availability for irrigation(P<0.10) and tenancy status (P<0.05). The results regarding poverty revealed that 2.50% of the sampled households were chronically poor, 5.0% transitory poor, 37.5% transitory vulnerable, 32.5% transitory non- poor and 22.5% was non-poor. Most of the sampled households fall along the transition line which implies their vulnerability to be trapped in poverty due to any shock. Beside other assets, even small scale irrigation was significant and an effective tool to improve income. Therefore along with improvement in irrigation practice through using high efficiency irrigation systems, other water harvesting techniques being demonstrated in the watershed project could also improve livelihood in the area. Better utilization of available resources would also improve livelihood and decrease poverty in the area.