Income generating activities play a vital role to improve the livelihood of rural people in developing countries. International donor agencies and national policy makers would like to see subsistence farming transformed into commercial agriculture to enhance the well beings of people in developing countries. In Nepal for the last two decades or so, farmers are incorporating income generating activities in subsistent farming systems. Most popular income generating activities include mushroom cultivation, sericulture, apiculture, and fish culture. Our objective in this paper is to use a multinomial logit model to determine the factors affecting the choice of income generating activities by Nepalese farmers. Some of the important explanatory variables used in this model are availability of water, inputs (such as seeds and disinfectants), technology, and market accessibility. We use 2012 census data available from the Agricultural Census of Nepal to conduct this analysis. Preliminary results indicated that availability of inputs and accessibility to markets are the major determinants in selecting income generation activities. The outcome of this study may help to promote ideal income generating activities for the benefit of rural farmers in Nepal or other developing countries.