This article estimated the impacts of land fragmentation on production costs and input demands using panel data of Japanese rice farms. Empirical results reveal that fragmentation increases production costs and offsets economies of size, and that these impacts are strong especially for large size farms. This result implies that as the farm gets larger, emphasis should be switched from increasing size to the settlement of fragmentation, in order to enhance efficiency. Moreover, it was demonstrated that fragmentation increases not only fuel inputs and labor hours for weeding and harvesting as generally accepted, but also managerial labor such as bookkeeping and meeting, and materials such as fertilizers and pesticides probably due to the substitution effects from labor. The range of fragmentation's impacts is spread beyond our scope. This result implies that the settlement of fragmentation will bring not only the reduction of production cost but also an environmental benefit by reducing fertilizers and pesticides.