Currently, the small-scale farmers in Sri Lanka are loosing competitiveness and rapidly moving out of agriculture, lack of access as well as well defined rights to land being major limitations. Possibility of increasing agriculture production through improved land rental markets in the alienated state lands was conversed in this study and results revealed that the removal of restrictions is likely to facilitate smooth functioning of rental market and thereby improve the land use efficiency. The study concluded that provided a conducive economic environment, land rental market can be used as an effective tool in the rural development process of the country.