This study evaluates the effect of human capital, measured by the level of education, on labour productivity in the Sri Lankan economy, at the national and sectoral levels, using a production function model which relates the level of output to labour, human capital, physical capital and natural capital. The model is estimated for the national economy and the three sectors of agriculture, industry and services, using firm level annual time series data from 1991 to 2009. The estimated results reveal that individuals with general education up to year ten are positively contributing to productivity improvement in all the three formal sectors, except the service sector, and also in the informal sector. The estimated results also show that participation of labour in the informal sector decreases as the level of educational attainment increases. Overall, this study, which is first of its kind for Sri Lanka, finds a quantifiable positive association between education and productivity in the formal sector. The impact of educational attainment on informal sector is different. The estimated results show that higher the level of educational attainment lowers the engagement of workers in the information activities. The inverse relationship between the level of education and informal sector activity may lead to reduce the productivity level in informal sector.