Smallholder dairy farming has been practiced in many parts of the world including Tanzania aiming at generating income from the sale of milk and providing alternative source of protein to people of all ages in the households. The objective of this study was to analyse technical efficiency of smallholder dairy farmers in EPINAV dairy project in Njombe District, Tanzania. Data were collected by using semi structured questionnaires administered to 120 smallholder dairy farmers randomly selected from 5 sampled villages. Gross margin and Stochastic Frontier were employed as tools of analysis to determine the mean gross profit per cow per year and technical efficiency per farm respectively. The results reveal that major cost structures comprise of initial investment, labour, and feeds costs. The mean gross profit per farmer per cow per year is low. The Stochastic Frontier Analysis revealed that smallholder dairy farmers technical efficiency range between 22% to 99% with mean of 68%. Experience of the dairy farmer negatively influenced inefficiency at 5% level of significance. It is concluded that majority of smallholder dairy farmers’ are fairly efficient. The study recommends that smallholder dairy farmers need to organize themselves in groups for bulk purchases of inputs during high season. This will reduce unnecessary cost of transporting and price increase of inputs during low season. Policy that enhances farmers’ learning through practical experiences is recommended for reduction of inefficiencies.