Groundnut is among the most important crops for smallholder farmers in Tanzania, providing both food and income for households. Groundnut is a nutritious source of fats, protein, carbohydrates, vitamins and minerals for human consumption and parts of the crop can be used for livestock feed. This study identified factors which contribute to the stagnation of groundnut production among smallholder producers in Urambo district of Tabora region in Tanzania. Quantitative data were collected using a survey questionnaire administered to 400 smallholder farmers. Multistage, simple random and purposive sampling were used to select participants. Qualitative data were also collected through focus group discussions, key informant interviews and personal observation. A multivariate regression technique was used to examine socio-economic factors influencing small-scale groundnut production in the district. In addition, the profitability of various crops produced in the study area was assessed using gross margin analysis. Results indicate that hours spent farming, cultivated land size, the price of groundnut from the previous season, cost of seeds and cost of pesticides significantly influence groundnut production in the area. Data further indicate that groundnut was the third most profitable crop in the area after beans and rice. The study also revealed gender disparity in land ownership. Few women owned land despite being major providers of labour. Based on the evidence, the study recommends that the government, among other policy responses, expand extension services to ensure that smallholder groundnut farmers have access to high-yielding groundnut seed varieties, agro-chemicals, improved farm inputs, storage and marketing facilities.