Agricultural sector in Tanzania and elsewhere in sub-Saharan Africa is dominated by smallholder farmers. This has made the smallholder-led growth strategy to be widely accepted as the pathway for achieving economic transformation and mass poverty reduction in Africa. Recently, however, concerns have been raised on the validity of favouring small farmers because small-scale farming in Africa has historically provided very low returns to labour. Also unlike earlier findings of the inverse relationship between farm size and efficiency, findings of recent studies have provided mixed findings which are not conclusive. This study was carried out to examine the Inverse Relationship (IR) between farm size and efficiency in Tanzanian Agriculture using National Panel Survey (NPS) data for 2008/09, 2010/11and 2012/2013. Specifically, the study intended to:(i) determine the average and farmer’s level of technical efficiency, land and labour productivity; (ii) determine the relationship between farm size and three measures of efficiency (technical efficiency, land and labour productivities) and; (iii) identify factors other than farm size which influence farmer’s technical efficiency and productivity. The study employed the Two-Step-OLS Regression technique in determining the relationship between farm size and the three measures of efficiency. The findings confirmed the presence of inverse relationship between farm size and the three measures of efficiency that were used in the study. However, when controlling for soil quality the strength of the inverse relationship between farm size and technical efficiency decreased from 0.50% to 0.34%. Similarly, when GPS data were used instead of farmer reported data, the strength of the inverse relationship between farm size and efficiency decreased from 0.51% to 0.47%. Apart from farm size, other factors found to have a significant positive influence on efficiency were farming experience, irrigation, use of fertilizer, household size and intercropping. Basing on the major findings of the study, the iii following are recommended: Firstly, the success of industrialization and inclusive growth in Tanzania depends on how effective are the agricultural and land policies, the study further recommends the use of GPS technology especially in large household surveys because it improves the accuracy of various analyses involving land variables. Secondly, since use of fertilizer and irrigation water have significant positive influence on efficiency, the study recommends that agricultural policies that consider sustainable use of fertilizer and irrigation water among smallholder farmers should be promoted in order to improve agricultural productivity particularly now when the government is promoting industrialization. Improvement of agricultural productivity is paramount for agro-based industries that will require raw materials and surplus labour from the agricultural sector