Fruits and vegetables comprise a large and dynamic subsector within Philippine agriculture. However, the country's agricultural development strategy continues to emphasize traditional crops. Evidence points to a significant role for fruits and vegetables in agricultural diversification and rural development. They represent a significant set of high-value activities, some of which are produced within organized supply chains. As the economy develops, fruits and vegetables should become increasingly important, both as a share in agricultural output and in the food basket. Diversification could be propoor as it may raise incomes of smallholders and workers. There are clear benefits to both producers and consumers from the expansion of the subsector; fruits and vegetables output has indeed grown more rapidly than agriculture as a whole. However, there remain impediments in reallocating resources to the high-value crops. Agribusiness supply chains have arisen to overcome some of these obstacles, though these chains may be inadvertently promoting inequitable and unsustainable patterns to agricultural growth. Despite numerous policies and programs to overcome these impediments and promote agricultural growth and diversification, constraints to development persist. These include: resource degradation; weak protection and tradability of land rights; distortionary policies in favor of traditional crops; geographic dispersion, inadequate marketing and logistics infrastructure; failure to realize scale economies in marketing; and inadequate supply of producer services such as agricultural credit, technology innovation, and technical assistance to smallholders. Policy change and institutional reforms are essential for the fruits and vegetables subsector to realize its potential for agricultural diversification and rural development.