The study analyzed the impact of adoption of improved groundnut varieties on farm inputs demand and productivity using instrumental variables approach. The data was collected from a simple random sample of 161 groundnut farmers in Eastern Uganda. Econometric results show significant increase in expenditure on improved seed and labor among adopters relative to the non-adopters. Adoption of improved varieties significantly increased groundnuts yield, by about 1688kg per hectare. Thus, more effort is needed to increase farmers’ access to improved varieties. The Government and partners should facilitate the development of local seed multiplication systems to reduce the cost of improved seed..