Daphne bholua Buch. -Ham. ex D. Don (Thymelaeaceae) is a woody shrub native to mid-alpine Himalayan forests. The bark of the D. bholua is used as raw material for handmade paper in Nepal since the 12th century and is used for value-added products, government documents, and religious texts. However, the unsustainable commercial harvesting of this species now threatens this centuries-old artisanal tradition. To inform and improve this important non-timber forest product, we evaluated habitat characteristics, size class distribution, and regeneration status of D. bholua along an elevation gradient (1900–2500 m) in Madane Mountain (MM), western Nepal. Altogether, 108 plots (5m ×5m) were established at three sites each with three canopy types: closed, semi-closed, and open. We analyzed the habitat characteristics considering variations in physical and topographic variables, coupled with soil properties and patterns of associated species composition utilizing both parametric and nonparametric methodologies. D. bholua exhibited the highest mean density at higher elevations with minimal disturbance, whereas the lowest elevation site, experienced greater human disturbance, with the lowest density. Furthermore, the population structure displayed a “reverse J-shaped” curve, suggesting favorable conditions for natural recruitment and regeneration. Additionally, our research findings indicate that D. bholua populations thrive in semi-closed forest canopies, particularly when associated with Rhododendron arboreum, Quercus semecarpifolia, and Sarcococca coriacea. Our key recommendation may appear surprising: we advise establishing a small, meticulously managed hand papermaking industry in the villages linked to MM, which would generate supplemental income and produce a culturally valuable and economically marketable product.