The purpose of this study was to analyse the production and marketing transaction costs of sugarcane outgrowers in Mvomero and Kilosa districts of Morogoro region in Tanzania. The specific objectives were to determine the level of transaction costs in different categories of outgrowers, to examine the influence of institutional arrangement on sugarcane transaction costs, and to examine the impact of transaction cost on the quality of sugarcane in terms of sucrose content (Rendement). Data were collected through a cross sectional survey by using structured questionnaire, complemented by focus group discussions, personal interviews with key informants, and field observations. A total of 160 sugarcane outgrowers (80 from Turiani and 80 from Ruembe) were randomly selected and interviewed. Checklists were used to gather information from sugarcane participating institutions. Descriptive statistics and regression analyses were used to analyse the data. The result showed that distance from the field to the factory is the only significant factor affecting the transaction cost positively in both study area. Regression analysis was also used to investigate the effects of transaction cost on sugarcane quality. The study revealed an inverse relation between transaction costs and rendement level with insignificant variable under study and weak explanatory power of the model. The study also revealed that there are several production and marketing problems that hinder prosperity of outgrowers‟ involvement is sugarcane production. The existing institutional arrangement has resulted in inefficient services delivery, losses to outgrowers and increased transaction costs; the study recommends reorganisation of the institutional set up of sugar industry; setting up policy that would create a good working environment between sugarcane outgrowers and the factories.Commission for Science and Technology (COSTECH)