This paper documents changing rates of poverty, sources of income, and employment among rural female-headed families with children, focusing on the effects of welfare reform. Data from the Current Population Survey show that from 1989 through 1999, especially since passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, rural poverty rates have declined among female-headed families and their children. Rates of welfare receipt also have dropped dramatically, and labor force participation has increased along with average earnings. Moreover, the income of all rural female-headed families with children increased on average over the past few years. The data also tell of persistent rural-urban inequality. More than 4 in 10 rural female-headed families were poor, and about half of these had income that was less than half of the poverty income threshold. This happened even though the share of rural female heads who were employed grew and average earnings rose. The problem today is that one-third of working rural female heads are in poverty, a rate higher than at any time during the period examined. Moreover, the rise in the proportion of rural female heads with earnings has not kept pace with the large decrease since the passage of PRWORA in the proportion with welfare income. Neither unbridled optimism nor pessimism about future trends in rural poverty is warranted, especially as the "hardest cases" and other nonworking welfare-dependent mothers run up against time limits for welfare receipt. (Contains 73 references and 12 tables.) (Author/TD)