Diversification of household activities away from agriculture is a key characteristic of economic development. We examine the extent of diversification among Vietnamese households, from agriculture into waged employment and entrepreneurship and whether this diversification is welfare enhancing. We also examine the factors determining this transition from agriculture. Using four waves of panel data on a large sample of households surveyed between 2008 and 2014, we find that diversification is, on average, welfare enhancing and that the most beneficial form of diversification is into household enterprises. The decision to diversify is primarily motivated by income, especially for low-income households.