This study is to examine the link between income diversification and household consumption in Mekong River Delta, Vietnam based on the 1993/98 panel data and the 2002/04/06 panel data. The study period covers a thirteen year period and drew on a framework that conceptualized diversification as a product of household capacity variables and “incentives to diversify”. The analysis showed that there is a clear link between income diversification and consumption, and that household capacity does play a role in influencing consumption. Particularly, results suggest that changes in household consumption over this period may be attributed to mainly two factors. First, the main household specific factor that plays a role in influencing consumption is a household head’s occupational status with a clear effect of non-farming work (manual or otherwise) on increasing consumption. Second, non-household specific attributes as captured by changes in the intercept account for the bulk of the increase in consumption. These findings support the idea that institutional and policy changes which have occurred in Vietnam in the last twenty years have provided the impetus for the spectacular growth and poverty reduction experienced in the MRD and in Vietnam.