The use of Contract Farming has been proposed as one of several possible solutions to the problem of market and institutional failures in many agricultural areas around the world. This study assesses the factors affecting participation and performance in smallholder tobacco contract farming system. The study was conducted in Karoi district, Mashonaland west province, Zimbabwe. Specifically, the study estimates the extent to which socio economic, resource and technological factors affect farmer participation in contract farming arrangement. The study also assessed the effect of contract farming and other socioeconomic factors on farmer’s incomes. A cross sectional survey was conducted on randomly selected 150 tobacco farmers from three wards, 10, 11 and 12. A pre-tested questionnaire was used to capture both qualitative and quantitative data on smallholder tobacco production and marketing. The attributes and characteristics of contracted and non contracted farmers were compared using one way analysis of variance (ANOVA), ratios and interactive bar graphs. Heckman’s two stage models which incorporates probit model in first stage and OLS in the second stage was used to determine the factors affecting participating in contract farming and the effect of contract farming on tobacco net income. Results from the study showed that 66% of the sampled smallholder farmers were contracted farmers against 34 percent of non contracted farmers. Contracted and non contracted farmers were statistically different in terms of farming experience, tobacco farming experience, use of hired labour, ownership of other agricultural assets beyond manual tools as well as total household. Age, number of year’s informal education and cattle ownership were not statistically different among farmers. However marital status, family size, number of years in growing tobacco and number of farm groups were found to positively influence farmer participation in tobacco contract in Karoi. Farmers’ age and availability of off/non farm income had significant negative influence on participation in contract farming. Use of hired labour and fertiliser, tobacco farming experience and cattle ownership were found to positively influence farmers’ net incomes. Contract farming increased farmer incomes by 28 percent even after controlling for unobservable characteristics. On the other hand maize income negatively impact on tobacco farmer’s net income. The study recommends the government to continue promoting private sector involvement in contract farming. To promote growth in contract farming field days and training of farmers is recommended. Targeting of farmers for contract faming should consider least endowed farmers to reduce inequality in rural areas.