The present study investigated the factors affecting rural households' livelihood diversification in southern parts of Khyber Pakhtunkhwa. Data was collected from 389 sampled respondents through a stratified random sampling technique from four Tehsils of District Bannu and Lakki Marwat. For data collection, a semi-structured questionnaire and face-to-face interview schedule method were used; descriptive statistics and a binary logistic regression model were used for analysis purposes. The study finding indicates that the majority, 72 percent of the respondents, had diversified their livelihood income sources due to climatic conditions, limited income, and large family size in the study area. The binary logistic regression result also shows the co-efficient of sampled respondents' age (.048), education (.088), family size (.168), earning members (.364), land irrigation status (2.915), and climate change (4.009) had a positive relationship with livelihood income source diversification. Finally, it is recommended that the farm size in the study area could have been bigger, resulting in more diversification due to limited resources. Therefore, it is suggested that the government should chalk out formal entrepreneurship programs for the local community to work more productively. It also needs to emphasize community-level irrigation development to increase livelihood diversification in the study area.