Summary In this paper we study the importance of the non-farm household enterprise (NFHE) sector in Vietnam. We do find that NFHEs increase income and reduce between-household inequality. However, the role of the NFHE sector has been diminishing, especially in urban areas, and the NFHEs have been affected by trade liberalization in the period 1993-2002. In terms of policy, this suggests that there is increasing scope for targeting NFHE sector policies at those NFHEs that are in the best position to benefit from the new opportunities in the liberalizing environment.