In this study, the cost of groundwater extraction, impact of groundwater depletion on farm income, wateruse efficiency, technical efficiency in crop production and costs of groundwater depletion among different categories of farmers have been reported. The study has been conducted in the Chamarajanagar district of the Karnataka state, where groundwater is the major source of irrigation. Data have been collected from over-exploited, semi-critical and safe villages. The study has shown a wide difference between large and small farms in their access to groundwater resource in terms of cost. The functional analysis has revealed that farm income is lower in over-exploited and semi-critical villages compared to safe villages. The mean technical efficiency in crop production has been found highest among farmers in over-exploited villages. The total cost of groundwater depletion has been reported more in over-exploited villages and the cost increases with increase in the size of holding. The impact of this cost would be maximum on small and marginal farmers because of their low resource base and limited means of income. The study has emphasized on the need for incentivising for efficient use of groundwater by adopting efficient irrigation technologies like drip, sprinkler, etc. to ensure livelihood security.