The study was conducted to determine profitability of livestock enterprise in Peshawar valley. Data on costs and returns was collected from thirty-one dairy farms. Profit function for dairy farms in Peshawar valley is estimated postulating profit as the function of milk price, green fodder price, wage of labor (per month), location of farm (rural vs. urban). The estimated profit function was statistically significant. Price of milk is the most profit elastic variable. Dairy farms located in rural areas are getting statistically significantly low profits than unban dairy producers. It suggests that a dairy farmer located in rural areas is getting significantly less profit as compared to those located in the urban areas. One percent increase in milk price will increase milk profit by 8.278 percents. Labor is an important determinant of profits and increasing one labor decreasing profits by 1.8 percents. However, labor is also a sensitive social variable determining the sustainability or total collapse of the dairy enterprise. Any dairy development policy focusing on the improvement of profits of dairy producers to either price support or inputs subsidies should more focus on dairy producers located in rural areas.