This paper analyzes the nature and sources of agricultural instability in the Bolangir district of Western Odisha, India. The nature of instability in agricultural production is examined by determining the agricultural instability index (AII) of variables such as area, production and yield of food grains and paddy, irrigation coverage, and annual rainfall. The period covered by the study (1984–2009), which is characterized by greater technology dissemination, is categorized into two sub- periods: (1984–1993) and (1994–2009). The effects of a change in major inputs on the variability of crop productivity are assessed using a double-log model. The yield decomposition analysis is used to examine the role of drought risk factors and the amount and productivity of inputs in crop yield growth. The extent of instability in agricultural production and productivity in the region is found to be quite high on account of the high level of rainfall variability and the low irrigation coverage. The level of instability in food grain production is much larger during the second sub-period. The decomposition analysis reveals that about 84.4 percent of the total change in paddy yield growth is due to drought risk factors such as rainfall failure, rainfall variability, high temperature, and drought-induced pest attack, while the remaining change in paddy yield is due to the change in amount and productivity of major agricultural inputs such as labor, fertilizer, pesticides, and irrigation.