Having witnessed a fast growth, the agriculture in Punjab has reached a plateau. To sustain even the existing level, the costs are increasing and natural resources are being depleted due to overuse. This study has examined the use of certain resources and its impact on the cost of production. The data have been collected from different primary and secondary sources. The fast increase in area under rice and wheat appears to be unsustainable due to the fast decline in water table. Therefore, the cost of pumping out water with electricity has been going up, shortage of electric power has resulted in increase in the number of electric and diesel tubewells, further escalating the cost of production. The replenishment of soil health due to depleting macro and micronutrients and increased pesticide-use have also been observed to increase the cost. Thus, the cost on account of these factors together has gone up by Rs 63/t in wheat and Rs 189/t in rice. The varietal diversity of wheat has decreased and that of rice crop has increased during the past two and a half decades. The policy measures to minimize excessive use of natural resources requires suitable input pricing, particularly for water resource, improving input-use efficiency and revamping market forces to encourage diversification of state agriculture from rice to alternative crops.