This farm-level study conducted in the Tumkur district of Karnataka state has reported the effect of contract farming on income and employment generation and has identified constraints in and prospects of contract farming. Both income and employment generation have been found higher, almost double, on contract than non-contract farms. The study has observed dominance of female labour on both types of farms. Delayed payment for crop produce, lack of credit for crop production, scarcity of water for irrigation, erratic power supply and difficulty in meeting quality requirements have been found to be the major constraints faced by contract farmers. The scarcity of water for irrigation, erratic power supply, lack of credit for crop production, and lower price for crop produce have been identified as major constraints of non-contract farmers. The major constraints expressed by the contracting agencies in expanding contract farming include violation of terms and conditions by farmers, lack of proper management by the company, frequent price fluctuations in international markets, and scarcity of transport vehicles during peak periods.