The study on economics of milk production was conducted in Chitwan district in 2005. The results indicated that production of milk was positively correlated with farm category, and cost of milk production was negatively correlated. The cost of milk production of small farm size category was 25 % higher than large farm size category. The feed cost (31.78%) was the major factor for explaining the cost of milk production. Benefit- cost ratio of large category was highest (1.42) followed by medium (1.33) and small (1.23) farm size category. There was significant difference in gross margin (p-0.005) among the farm categories. The higher marketing efficiency was found in personal selling followed by private and DDC marketing. The milk price (p-0.020), market security (p-0.022), and quick payment (p-0.048) were significant reasons for determining location of selling. In more than 60 percent of the production activities, involvement of women was higher than men, where as in marketing activities like milk selling, marketing training involvement of male was higher.