The study reviewed the initiatives taken by the Punjab government to face the challenges of diversification of agriculture and identified the constraints in the light of WTO regime. The various expert committee reports were examined like Dr. Johl’s report on diversification of Punjab agriculture (1985); Dr. Alagh’s report on adjustment programme for Punjab agriculture under WTO regime (2000); ‘Agricultural Production Pattern Adjustment Programme in Punjab for Productivity and Growth’ through diversification of Punjab agriculture (2002) and the evaluation of Punjab Government’s ‘Contract Farming Scheme’ for diversification in Punjab agriculture (2002-03). The important stakeholders of agricultural economy of the state like administrators, bankers, farm leaders, academicians, processors and traders, were also contacted regarding the likely impact of various WTO provisions on the agricultural economy of the state. In WTO era, the Punjab agriculture faced threats due to the WTO system being against making price interventions through institutions like Food Corporation of India (FCI) and subsidies given to agriculture inputs like fertilizers, power and irrigation. Falling international prices of farm products on account of highly subsidized agriculture sector in developed countries and refusal of imports from the developing countries for not meeting the quality standards were major concerns for domestic agriculture sector. The issue of market access up to 3 per cent to be gradually increased to 5 per cent poses a threat to the prices and food security and the imports. To overcome these constraints, the study highlighted the need for the increasing subsidy level for agriculture sector in the state as under WTO regime, it can still be increased. India can firmly put the case for lowering the support to agricultural sector in the developed countries particularly ‘green box’, ‘blue box’, export subsidy system and high tariff rates. There is need to strengthen the agricultural extension system to spread the relevant technology among the farmers and to make them quality conscious to overcome the SPS clauses and to reduce the cost of agricultural production.