ABSTRACT This study was designed to assess the cost efficiency of watermelon production in Rufiji and Mkuranga Districts. Specifically the study determined cost efficiency level of watermelon farms, determined variation in cost efficiency between farms of different size and capital and examined sources of cost inefficiency. Two stage random sampling was used in selecting 200 farmers from the two Districts who were used to collect information required in achieving the major objectives of the study. Cost efficiency (CE) for farms in Mkuranga ranges from 0.10 to 0.99 with the mean CE of 0.73. Results for Rufiji show that the CE for the farms ranges from 0.89 to 0.99 with the mean CE of 0.90. Findings also revealed that farms with small farm size and capital size had higher mean CE than farms with large size and capital size in the study area. As for the sources of cost inefficiency, education level, farm size, capital size and logistic services were found to have significant influence on cost inefficiency. Apparently, these results suggest that watermelon production is generally cost efficient and the efficiency is influenced by capital size and farm size in the selected areas of study. Recommended in this paper is the encouragement of farmers to consider size of capital and farms when producing watermelon to ensure maximized efficiency. Keywords: Watermelon, Smallholder Farmers, cost efficiency, Tanzania. Acknowledgement : This work was supported by the University of Dodoma under Higher education loans board (HELSB) of the government of Tanzania. The authors would like to thank the reviewers in advancefor their constructive comments on improving this paper.