This paper argues that existing food security and food sovereignty approaches are inadequate to fully understand contradictory human development, nutrition, and productivity trends in Nepalese small-scale agriculture. In an attempt to bridge this gap, we developed a new food wellbeing approach that combines insights from food security, food sovereignty, and social wellbeing perspectives. We used the approach to frame 65 semi-structured interviews in a cluster of villages in Kaski district in the mid-hills of Nepal on various aspects of food security, agriculture, off-farm livelihood opportunities, and women’s wellbeing. Our results indicate that context-specific subjective and social relational factors highlighted by the food wellbeing approach are key to understanding a paradox of increased food security, yet decreasing sustainability of small-scale agriculture. Increased levels of male out-migration and opportunities for local off-farm work have increased local capacity to purchase food. The positive consequences for food security are indicated by evidence that households with non-farm income sources had better food sufficiency, absorption capacity, nutritional quality, and stability of food supply. These off-farm employment opportunities have also led to the greater involvement of low caste groups and women in small-scale agriculture. This has been empowering for both groups and led to an increase in wellbeing, particularly for those women who have become de facto heads of household. Yet, small landholdings, persistent patterns of unequal and absentee land ownership, sharecropping, women’s overwork, and the aspirations of low caste farmers and women away from agriculture are simultaneously driving the erosion of local small-scale agricultural productivity and ecological sustainability.