Since high-yielding modern rice varieties (MVs) are adopted only in favorable production environments, significant regional productivity differentials have emerged in Nepal. This study explores the distributional consequences of such differential MV adoption based on an intensive survey of favorable and unfavorable villages. We found that MV adoption increased returns to land but decreased family labor earnings from rice production, as it facilitated the substitution of hired for family labor. As a result, the differential MV adoption did not significantly worsen the household income distribution according to the results of the counterfactual Gini decomposition analysis.