Crop genetic resources are the building block of sustainable agricultural development as these can be used to develop crop varieties adaptable to heterogeneous environmental conditions. Nepal is considered the center of origin and diversity for Asian rice, which still has many landraces. However, there has been continuous loss of genetic diversity and concern over it has grown in recent years. The main objective of this paper is to identify the determinants of variety diversity on-farm in the rainfed ecosystem of Nepal by using two-limit Tobit procedure. The diversity on farm appeared to be quite high evaluated based on the number of named varieties grown by the farmers. Majority of the farmers cultivated both modern varieties and landraces simultaneously and the rice production is also getting commercialized gradually. The results showed that the motivating factors for variety diversification are the heterogeneous production environments, risk consideration and farmers' participation in the markets. However, the farmers' dependency on formal extension system for the seed of limited varieties led to reduction in diversity. Diverse crop genetic resources on-farm can generate both commercial and noncommercial benefits. As economies develop, markets play an important role in shaping farmers' choices and use of cultivars diversity. Therefore, the public investments are needed in developing the infrastructures to support the formation of niche markets and increasing the farmers' participation in crop breeding and improvement programs. Also, the formal extension system should be mobilized for the production and distribution of seeds of many varieties including the landraces.