Income poverty in Tanzania as elsewhere in developing countries is predominantly a rural phenomenon and affects largely households relying on subsistence farming. This is despite the fact that poverty reduction strategies have devoted increasing attention on the role farm employment in enhancing household income. This paper argues that, off-farm employment may have potential to contribute to reduction of rural households’ income poverty. Hence the main objective of the paper is set to examine effects of off-farm employment on income poverty. Data was collected from a random sample of 309 households in the first quarter of 2014 in five villages of Kilombero Valley, Tanzania using a structured questionnaire. Income poverty was analysed using the Foster-Greer-Thorbecke (FGT) poverty index and two stage least square (2SLS) regression. Households with off-farm employment income were found to be less poor based on all the three FGT parameters which are incidence, depth and severity of poverty. Similarly, estimations from the 2SLS model showed that holding other factors constant, engagement in off-farm employment led to increased total households income, and hence a significant predictor of households’ poverty status. Other variables which were significant are; crop shock, farmland location and land ownership. It is thus recommended that, rural development policies should be broad based to consider the diversity of households’ income strategies including engagement in rural off-farm employment activities. Increasing opportunities for off-farm income generation may be a route out of poverty among rural households.