The paper attempts to explore the relationship between federalism and rural development. Federalism is a division of power, responsibility and accountability to bring the administrative and political power closer to the ground and essentially to increase the good governance. On the other hand, rural development is a complex and multidimensional issue- especially much demanding for least developed and developing countries. A descriptive and qualitative approach was carried out to study the complex relationship between rural development and federalism. Similarly, a SWOT analysis was carried out to have a better understanding of the relationship. The study found that there is significant potentiality for accelerated development of rural landscape in federalism if carefully executed. However, on the other hand, federalism may pose several risks on rural development and may restrict the development pace if not executed with appropriate care and understanding. Therefore, the study concludes that cooperation and coordination among the federal structures are crucial for better development of the rural economy.