Malnutrition remains a significant global challenge, particularly in developing countries. Policymakers have increasingly focused on improving household food security and nutrition through farm production diversity (FPD). While research indicates that FPD correlates positively with reduced malnutrition, other studies emphasize the importance of market access for improved nutritional outcomes. However, this evidence varies by region and remains inconsistent. To address this knowledge gap, this study analyzed survey data from 450 smallholder farmers in Punjab, Pakistan, using regression models to examine the relationship between FPD and dietary diversity, as well as the underlying impact pathways. The findings demonstrate that FPD significantly correlates with increased household dietary diversity score (HDDS). FPD influences dietary diversification through both own-farm production and market food consumption pathways, with the own-farm production pathway showing greater impact. The increase in food expenditure through own-farm production yielded a marginal return of 8% in household dietary diversity compared to 5.3% through marketing. Gender differences emerged as significant, with male-headed households showing relatively lower dietary diversity. These findings have substantial implications for countries with smallholder farming systems, providing valuable insights for the formation of agricultural policies, resource optimization, and rural development initiatives.