Land degradation with deforestation and loss of biodiversity has been considered one of the most serious environmental problems for developing countries. The lower level of agricultural productivity resulting in the inability to obtain a sufficient level of production in agriculture leads rural communities to exert pressure on forest resources while damaging the ecological services provided by them. Promotion of economic efficiency as well as achieving environmentally sustainable farming practices can help maintain a sustainable agricultural sector while reducing land degradation and pressure on forests in rural communities. In this context this study investigates the relationships between different indicators of agricultural biodiversity (crop diversity, livestock diversity and agro-diversity) and farm level technical efficiency (TE). A survey conducted covering 723 farms in Sri Lanka is used for the analysis. The results show that crop diversity, livestock diversity and agro diversity are positively related with farm level TE. Hence, it is clear that maintaining more diverse farming systems is crucial to reducing farm level inefficiency and thereby improving the welfare of rural households while reducing the pressure on extensive agricultural practices which has increased global deforestation. Such diversity is especially important for subsistence agricultural practices which are still widespread in most Asian countries.