Genetically modified cotton varieties have greater production efficiency for smallholders in farming communities in China. We also find that the adoption of Bacillus thuringiensis (Bt) cotton varieties leads to a significant decrease in the use of pesticides. Hence, we demonstrate that Bt cotton appears to be an agricultural technology that improves both production efficiency and the environment. In terms of policies, our findings suggest that the government should investigate whether or not they should make additional investments to spread Bt to other cotton regions and to other crops.