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Forests in mountainous watersheds sustain water flows, providing a valuable lifeline in times of no rain. The clearance and destruction of forests, for plantations and modern chena cultivation, degrades watersheds, resulting in the loss of these ecosystem services, impoverishing people and diminishing watershed sustainability. The Neo Synthesis Research Centre (NSRC) has been involved in rehabilitating Sri Lankan watersheds for over 30 years, which has included implementing forest gardens (FGs) in Maragalakanda. The article describes the rehabilitation of one farmer's land (referred to as Rani), which resulted in increased household livelihood security, reversed forest loss, and sustained watershed health. The rehabilitation efforts followed a successional process, using regenerative agriculture, analog forestry, and conservation forestry. The landscape design divided Rani’s landholding into several land uses. In addition to the forest gardens which were modelled on the adjacent forest, there were paddy fields, chena and cash crop areas, and a buffer zone between the disturbed natural forest and the landholding. Comprised of 175 different species, the forest gardens provide various regulatory ecosystem services, and over half provide food, medicine, timber, firewood, ornamentals and biopesticides, which are either used for household consumption or sold to generate income. Monitoring and evaluation revealed positive impacts on biodiversity, soil fertility, and food and income security. By 2013, Rani's landholding had become a biodiversity corridor, attracting more birds and increasing her total income to USD 32 241, mainly thanks to her forest gardens. As a result, Rani achieved financial stability, enabling her to invest in and educate all five of her children, eliminating any need to clear forests for livelihood. Despite an average FG profit of USD 24 413, challenges of increased rainfall variability, animal pests, and rising costs of purchases stress her newfound livelihood. Nonetheless, watershed rehabilitation with forest gardens succeeded in reversing forest loss, restoring ecosystem services, and increasing livelihood security. To ensure more households benefit as Rani’s did, policymakers and planners must consider population growth and allocate new lands for expanding watershed populations while implementing laws to prevent forest destruction.