Agricultural diversification efforts towards sustainable agriculture generates environmental and economic benefits. Climate change and agricultural production are characterized by a complex cause-effect relationship. In the present study, the primary dataset is collected through an interview-based survey from 410 farmers in 3 districts located in different agro-ecological zones of Punjab, Pakistan. Detailed analysis is conducted by employing the Gaussian treatment effects approach. Results of the study show that the farmers who adopted agricultural diversification to mitigate the impact of climate change were less and insignificantly benefited e.g., on an average of RS 95,260 (US $635) per annum whereas non-adopted farmers lost their farm income on an average of RS 115,750 (US $772) per annum if they had practiced the agricultural diversification. Moreover, determinants of agricultural diversification such as demographic and institutional indicators were significant and larger effects to adopt as compared to social indicators. This study suggests that policies should be designed in the regional context particularly related to the improvement in demographic characteristics and institutional factors such as providing subsidies, training, and awareness to the farmers, particularly to those who practice agricultural diversification. These measures will help to raise the farmers' adaptive capacity for the adoption of agricultural diversification, and it will enable them to generate tangible benefits by increasing income through adopting sustainable agricultural livelihood.