Using the Malawian Integrated Household Panel Survey data, the paper finds large and positive returns to education in Malawi suggesting that education is a good investment. Our sample is limited to economically active individuals aged between 15 and 64 years with positive earnings. The returns increase with the levels of education. Interestingly, females have higher returns to education than males with similar skills at all levels of education. The paper sheds light on the importance of distinguishing between formal and informal employment sectors when estimating rates of return on education in developing countries. Furthermore, studying Malawi’s informal sector is important as it accounts for 89% of total employment. Based on the findings, the study recommends education policies that improve female education and higher education in general. Our results are robust to different model specifications and compare favourably with those observed in previous studies in Malawi and other Sub-Saharan African countries.