This chapter examines the factors that influence diversification of incomes among smallholder sugarcane contract farmers in Kilombero and Turiani in Tanzania. Most studies that focus on income diversification in the rural areas of developing countries, including Tanzania, have considered various explanatory factors for participation in certain livelihood activities. Conceptually, asset endowments and contract farming (CF) variables are important in shaping the diversification behaviour of sugarcane contract farmers in Kilombero and Turiani. Access to physical assets is fundamental for participation in many income-generating activities, and hence it ultimately influences income diversification. Satisfaction with the CF agreement is a further explanatory variable. This is a dummy variable that has a value of one if a smallholder sugarcane-grower is satisfied with the pre-determined price of sugarcane and the payment modalities agreed in the contract and is zero otherwise.