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Abstract : This paper takes on an older debate that the agriculture transformation in the regional economy of Kerala has been mainly driven by ‘peasant rationality’. It argues that the agrarian transformation driven by peasant rationality, in turn, has created a dichotomous agrarian society in the state with a genre of rich farmers who have significantly benefited by the ‘rational’ switch over to commercial agriculture while another segment of subsistence farmers who got marginalised by the agriculture development process in the state. The paper argues that the agriculture development process driven by ‘peasant rationality’ has several ramifications in so far as the sustainable future of Kerala’s agriculture economy is concerned from multiple perspectives. To substantiate this, the paper critically examines the agricultural development experience of the state over the past six decades and tries to bring out the impasse affecting the agriculture sector in the emerging context of growing market uncertainties and other challenges confronting the agroecosystems and natural environments.