Discussions of rural development policy are for the most part focused on the tenurial, institutional, technical, infrastructural, and economic aspects of agricultural development. In contrast, nonfarm activities in agricultural regions receive little attention, and a number of models of agrarian economies with nonfarm activities have even predicted a decline of such activities with agricultural development. It is shown here that nonfarm activities in agricultural regions expand quite rapidly in response to agricultural development and merit special attention in the design of rural and urban development strategies.The extent and importance of nonfarm activities in rural areas and towns is examined from the viewpoint of their contribution to the output, employment, and earnings of the rural labor force. Nonfarm activities become increasingly concentrated in rural towns in response to infrastructure improvements and the growth of markets. Besides being of benefit to the activities themselves, the process appears to stimulate a degree of decentralization of urban growth, providing added employment and earnings opportunities fr the out-migrants from agriculture as agricultural productivity rises. Nonfarm activities in rural areas and towns are thus an essential element in the process of economic development and structural change from rural-agricultural to urban-industrial economies. Appendices.