This study investigates the potential of Malawi's groundnut sector to enhance smallholder food security and diversify agricultural production, alongside the risks posed by aflatoxin contamination. Utilizing primary survey data from smallholder farmers and traders in Kasungu and Lilongwe Agricultural Development Divisions, we analyze the relationship between aflatoxin knowledge and the adoption of aflatoxin-reducing practices, as well as attitudes towards consumption of affected groundnuts. Our findings reveal that traders generally possess higher aflatoxin knowledge, particularly regarding post-harvest practices. Both farmers and traders express significant concerns about the consumption of mouldy groundnuts and livestock products from animals fed with contaminated groundnuts. Regression analysis indicates positive correlations between aflatoxin knowledge and the adoption of preventive measures. Specifically, knowledge of proper farming practices such as early planting and timely harvesting is associated with the adoption of aflatoxin-reducing practices. The study highlights the need to enhance extension services by training agents on aflatoxin risks and mitigation strategies, understanding the influence of market environments on trader practices, and focusing on awareness campaigns about the health risks of aflatoxin. These insights are crucial for aligning local practices with international standards, improving market access, and ensuring food safety.