Using a novel dataset from a 2010 household survey involving 477 households, this study provides the first econometric evidence for the impacts of farmland loss (due to urbanisation) on nonfarm diversification among households in Hanoi’s peri-urban areas in Vietnam. The results from fractional logit and fractional multinomial logit models indicate that farmland loss has a negative effect on the share of farm income but a positive effect on the share of various nonfarm incomes, notably informal wage income. We also investigate the relationship between various income sources and income inequality using a Gini decomposition analysis. While income from informal wage work and farm work are inequalitydecreasing, other income sources are inequality-increasing. Thus, this suggests that farmland loss has indirect mixed effects on income inequality.