In recent years, there is growing opinion on the need to initiate soil and water conservation, to develop watersheds and to provide protective and supplementary irrigation particularly to wastelands, drylands, hill terrains etc., for enhancing production and produtivity. The study is based on primary data collected from a random sample of 200 households selected from four villages - two from the project area and another two outside the project area of Kashipur block in Rayagada district during January 2005. Analysis of survey data indicates that the impact of watersheds on dryland agriculture, is favourable in terms of changes in cropping pattern and its intensity but not in food security and the incidence and intensity of poverty in the project area compared to adjoining non-project areas which acted as a surrogate for the project area when the IWDP project was not implemented.