This applied research is an attempt to analyse the effectiveness of milk marketing and facilitate developing a sustainable milk value chain for dairy farmer’s groups in Punakha district. Both quantitative and qualitative methods of survey, key informant interviews and focus group discussion were used as research strategies to obtain relevant information. The survey was conducted using both open and closed-ended structured questionnaire in seven subdistricts of Barp, Dzomi, Guma, Kabisa, Shelnga-Bjemi, Talog and Toedwang. A total of 60 respondents; 30 existing milk suppliers and 30 non-milk suppliers were drawn using a simple random sampling technique. One-to-one interviews were conducted following semi-structured questions with eight key informants in the chain. One focus group interview was conducted with the existing dairy farmer groups representatives to triangulate and discover in-depth information about the situation of the milk value chain in the district. The survey data was analysed using the Statistical Package for Social Sciences software version 20. A method of grounded theory design was used to analyse the qualitative data of interviews and focus group discussion. Value chain mapping was employed for assessing the operational situation of the current milk chain. The mean cost of milk production was estimated at Nu.27.53 per litre and the maximum expenses were incurred in animal feeds which were estimated to be 46.34% of the total cost of milk production. In this study, milk producers had the highest share of added value and profit which were estimated at 45.45% and 44.85% respectively. Limited information and coordination amongst stakeholders have contributed to slow progression in the formal milk market. The finding reveals that 90% of nondairy farmer groups respondents were interested in joining formal milk marketing. The average morning milk available for supply from this group would be 4.41 ± 3.07 litres daily by each household. The study also found that 50% of the respondents were interested in supplying evening milk with an average of 4.43 ± 2.25 litres per day per household. Based on the result of this study, it was concluded that there are possibilities of expanding the milk value chain in the district. However, there is a need to enhance consistent milk supply through a quality-based milk payment system, access to reasonable input supplies, and facilitate strong multi-stakeholder processes along the milk value chain.