The role of non-farm sector has been examined in promoting rural livelihoods in the state of Punjab, especially of the landless and marginal farm households who are often poor and derive a sizeable proportion of their income from non-farm activities. The non-farm income sources have been found to contribute towards reduction in income inequality. Owing to their lower level of education, lack of skills and capital, these households are engaged in relatively less-remunerative activities. The determinants of participation in non-farm activities have been identified and it has been found that larger family size, higher dependency ratio, small landholdings and social backwardness motivate farm households to participate more in the non-farm sector. Improvement in education and skills and creation of productive assets are crucial for enhancing their participation in more remunerative income-generating non-farm activities.