Smallholder farmers in the mid-hills of Nepal are facing an acute labor shortage due to out-migration which, in general, has affected the capacity to achieve timely crop establishment, harvest, and inter-cultural operations. These effects are more visible in the case of labor-intensive crops such as rice and promoting higher levels of rural mechanization has emerged as the primary policy response option. Nevertheless, quantitative evidence for the ability of mechanization to offset the adverse effects of shortages increasing labor prices in these systems is largely absent. This study investigates the impacts associated with adoption of mini-tillers (5 to 9 horsepower) for land preparation on smallholder rice productivity in the mid-hills of Nepal. We use an endogenous switching regression that accounts for both observed and unobserved sources of heterogeneity between mini-tiller adopters and non-adopters. Findings demonstrate that rising on-farm rural wage rates and an emerging decline in draft animal availability are driving adoption of the mini-tiller. Among users, the mini-tiller increased rice productivity by 1,110 kg/ha (27%). Further, regression results suggest that mini-tiller non-adopters would be able to increase their rice productivity by 1,250 kg/ha (26%) if they adopt. Moreover, our analysis revealed that very small farms (?0.25 ha) that adopt mini-tillers are benefited the most in terms of gains in rice productivity. These findings support policies that favor the expansion of small-scale mechanization in the hill production ecologies of South Asia and highlight the need to foster the emergence of an associated service economy that will permit smallholders access to capital-intensive machinery such as the mini-tiller.