Abstract This study was carried in Kayanga ward, Karagwe district in Tanzania with the aim of evaluating contribution of small scale dairy farming in improving household welfare. The specific objectives of the study were; firstly to compare annual profits from various enterprises including dairy cattle farming by smallholder dairy cattle farmers; secondly, to determine the role of manure from dairy cattle farming in improving crop productivity; and thirdly, to determine the role played by small scale dairy cattle farming in improving household income, possession of durable assets and food security status. The data for this study were collected through a cross- section survey which involved both dairy farming and non- dairy farming households. In-depth interviews with key- informants (i.e extension agents) were also carried out to gather some qualitative information. Data were analyzed using Statistical Package for Social Sciences (SPSS 11). Results from this study indicated that small scale dairy farming contributed substantially to household welfare. Average annual profit per household from small scale dairy farming by small scale dairy farmers was on the same range as those from crop production and small scale business ( i.e. approximately 1 million Tsh.), meaning that it is equally profitable as with other main enterprises by dairy farmers. As a result of using manure in farms from dairy cattle, average food crop yields among small scale dairy farming households were significantly higher (P< 0.01) than those of non- dairy farming household, and hence more food secure. Average household income, value of durable assets, and food security status (i.e. frequency of consumption of some nutritious food) were significantly higher (P < 0.01) in dairy farming households than in non- dairy farming households indicating dairy farming households to be better-off than their counterpart. Due to the observed good outcomes of small scale dairy farming, more promotion of this undertaking in the area has been recommended.