Rural industrialisation has become an important aspect of inclusive economic growth, job creation, poverty alleviation and balanced regional development in India. In Arunachal Pradesh, with over two-thirds of the population in rural areas and agriculture being the key activity, the process of industrialisation in rural areas has emerged as a vital tool for livelihood diversification and a way to curb dependence on subsistence farming. The state has vast natural resources, high biodiversity, traditional skills and unique cultural heritage, which offer tremendous potential for rural industries development. The important sectors that have been developed in the rural area are Handloom, handicrafts, bamboo & cane-based industry, food processing, agro based industry, forest-based industry and also the rural tourism. Though the industrial potential is huge, the rural industrialisation is marred by many other problems like lack of infrastructure, remoteness, lack of market connectivity, lack of access to finance, technology backwardness and lack of skilled man power in Arunachal Pradesh. The present scenario of rural industrialisation in Arunachal Pradesh is analysed with emphasis on its growth, achievements, challenges, government initiatives and prospects.