This study has analyzed an important development in the recently privatized large estates of the plantation sector in Sri Lanka, the substitution of rubber with oil palm. Cost benefit analysis and domestic resource cost criterion were employed to assess the financial, economic, and environmental aspects of this development. Extended cost benefit analyses were conducted to capture the carbon sequestration benefits of the two crops. The study indicates that the current trend was caused by the continuous drop in world rubber prices from 1966-2000 due to the South East Asian (SEA) financial crisis. BEcause of the low price levels, the financial returns from rubber were considerably lower than oil palm during the crisis period. This situation seems to have caused private entrepreneurs to move away from rubber to oil palm. However, this anaysis indicates higher economic and environmental benefits from rubber than oil palm even at low price levels. This study thus emphasizes the importance of proper policy research to ensure the sustainable development of this vital sector in Sri Lanka.