This paper reviews and interprets changes in rural livelihoods in southern Malawi following market liberalisation. It argues that, by reducing household maize production, market liberalisation has increased the need for resource-poor smallholders to develop market strategies that provide them with income security. Whereas previous scenarios for poverty elimination in Malawi were based either on green revolution technology or burley tobacco, the emerging scenario in the rural south is one where smallholders seek market niches that do not threaten household food supply. The potential of this market-based scenario for poverty elimination requires a greater understanding of the links between agriculture and micro enterprise, two livelihood strategies that usually receive separate treatment in the development literature.