Purpose: The purpose of this study was to determine the effect of contextualization in teaching Philippine short stories in English to students’ reading comprehension and the relationship between students’ reading interest and their comprehension levels. Approach/Methodology/Design: The study is experimental in design. It employed the Z-test and utilized a structured survey questionnaire in collecting the data. Seventy-two (72) Grade 7 students of Lila National High School in the school year 2018-2019 had the Frustration level of reading comprehension based on the Phil-IRI results conducted before the experimentation took place. Contextualized teaching instruction and learning activities were utilized by the experimental group during the discussion of the three Philippine short stories in English. Findings: The study revealed that (a) both the experimental and control groups had the average interest level towards Philippine short stories in English, (b) in the Phil- IRI comprehension result, both the experimental and control groups’ level of comprehension is in the frustration level in three comprehension test categories namely literal, inferential, and evaluative/critical, (c) in the formative comprehension test results, the experimental group’s comprehension level increased to instructional level where in the literal and inferential test levels, the group is classified under independent level and instructional level in evaluative/critical. On the other hand, the control group’s comprehension level fell under instructional in the literal and inferential test levels and remained frustration under evaluative/critical. Practical Implications: The study has practical implications for literature teachers. The findings will assist the literature teachers especially those who are handling Philippine Literature subjects. In addition, an Action Program is proposed to improve reading comprehension in Lila National High School, Philippines. Originality/value: The study is different from existing researches since it focused on the contextualization in teaching Philippine literary pieces, particularly short stories to increase students’ interest in learning and improve comprehension.