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Rural households across developing countries rely on diversified sources of income, and forest resources play important role in this regard. This study was designed with the objectives of assessing the contribution of forests to annual income of rural households and identifying its determinants using the case of Jelo Afromontane forest in eastern Ethiopia. It also examined the gender dimensions of forest income, and how this income varies with the wealth status of households. Key informant interview, focus group discussion and household-based questionnaire survey were used to collect data. On average, income from crop production accounted for 40.7% of the total annual household income. Forest income was second in importance, contributing 32.6%. Income from livestock, off- and non-farm activities, and woodlots accounted for 13.6%, 11.4%, and 1.7% of the total household income respectively. Firewood was the most used forest product and constituted the largest proportion (79%) of the total forest income. The contribution of forest income to the total household income varied significantly (P < 0.05) with wealth category. Forest income was more important for poor households (47.3%) than for medium (30.5%) or rich (20.2%) households. It was also more important for female headed households (58.2%) than for male headed households (29%). The gender dimension of forest income was also apparent within the household. Female members generated about four times more forest income (77% of the household forest income) than male members (23%). The sex of the household head (P < 0.01) and distance to the forest (P < 0.05) were the two determinant variables that significantly affected forest income out of the eight explanatory variables considered in the regression model. Policy to promote new forest management arrangement such as participatory forest management (PFM) in Jelo forest needs to take into account the major forest users and the types of products they depend on, and be accompanied with other poverty reduction measures so that improved forest conservation outcome will not have negative consequences on local livelihoods, particularly on poor and women, who depend most on the forest.