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Technologies-based production practices are critical for agricultural growth and sustainable development in low-income countries like Nepal. In the last few years, tunnel house has been increasingly promoted as tools to enhance smallholder farmers’ livelihood and tackle climate adversaries. However, little is known about what factor determines its adoption and whether it helps smallholders adapt to climate change and experience better livelihood. We address these gaps using the cross-sectional survey data collected from 62 adopters and 92 non-adopters in three municipalities of Bagmati Province. We employed descriptive analysis and probit model and found out that age, farm size, and ethnicity strongly influence the technology adoption amongst smallholder farmers. Additionally, treatment model and ordinary least square (OLS) regression were utilized to examine tunnel technology’s effect. Our study shows that tunnel significantly increases production by 32 tons/year/hectare and protects crops from climate change effects such as heavy rainfall and temperature change. Likewise, tunnel technology increases the net crop income by $1700/year/hectare. However, the economic benefit is not substantial compared to technology’s adoption cost as adopters incur enormous costs of $12,000/year/hectare on equipment, labor and resources. These results suggest policymakers should concentrate on reducing the technology’s cost, which could be achieved through subsidies, financial support, or price control mechanisms. Ensuring technology’s affordability can contribute to smallholder farmers’ sustainable livelihood in Nepal and countries with similar contexts.