Sustainable livelihoods, once enjoyed by native communities, are often threatened and in danger of extinction when new regulations and other forms of restrictions are introduced. These restrictions are often promoted with intended purposes, such as protecting the environment or securing resources from encroachment. However, these acts are slowly replacing the traditional adat (customs and traditions), which are used to define the rights attached to the use of communal and ancestral land. This is especially true when comes to access to forest products and land, in which native communities have used for generations. What the natives see as legitimate and traditional use, the state sees as an encroachment of property; and it has now become illegal to utilise these resources. This paper presents how native communities have adapted to such restrictions and continued to live in a sustainable manner through an adaptive strategy that is in line with state policy changes. A combination of quantitative and qualitative method is used to understand the dynamics of the strategy used by the native communities to adapt to these policy changes. The findings reveal how the natives have employed an adaptive strategy in response to state policy changes. The lessons learned from this study can provide useful pointers as to how state policies, in relation to highland settlements in the state of Sabah, Malaysia, can be improved.