The on-board data processing of the AGILE instrument is a crucial element of its successful operations. We describe the design and implementation of the Payload Data Handling Unit (PDHU) that oversees all scientific acquisitions of the AGILE scientific instrument. The PDHU manages data from all four scientific detectors: the Silicon Tracker, the Mini-Calorimeter, the X-ray imager (Super-AGILE), and the anticoincidence system. Specific PDHU tasks are: the Payload scientific and ancillary sub-system control, the operational modes management, the scientific data processing, and the telemetry/telecommands management. The scientific data processing involve the gamma-ray photon filtering and particle background rejection, the X-ray data acquisition, and a gamma-ray Burst acquisition logic with sub-millisecond trigger capability. The AGILE Data Handling system is very flexible and has been successfully implemented for the complex on-board operations of the scientific instrument.