Externality of agriculture includes both external economy and external diseconomy. The external economy implies multiple roles of agriculture in food security, economic, ecological, social and cultural aspects besides providing food and fiber for human beings, while the external diseconomy is mainly focused on negative environmental impacts of agriculture, such as soil erosion, depleting water resources, non- point source pollution and greenhouse gas emission, etc. Externalities of agriculture in China in aspects of soil, water, air, biodiversity and landscape are identified and explained in detail. Many researches have been carried out on valuing the ecosystem services and external cost of agriculture, including a few about environmental cost in China. Yet the results can not be compared with each other simply because of numbers of reasons: strong regional characteristics of externalities, shortage of standard evaluating methods and different stands of evaluators. As both external economy and diseconomy are low efficient in resource allocation, the source of externality, whether from market failure or policy failure, or both, is being internalized by policy reform or technology amelioration. Objectives of both domestic agricultural policy and international trade one are to optimize multi- values of agriculture and to control the diseconomy of agriculture. Therefore, sustainable development of agriculture becomes one of preconditions. Policies and regulations that can protect rural environment, ensure food security and promote rural development have been attempted by Japan, USA and EU, etc., which have taken effects in different degrees. And sustainable agriculture technology has been proved to be one of feasible measures for internalizing external cost of agriculture, including: diversifying landscape, Integrated Pesticide Management, soil and water conservation, no tillage, and Best Management Practice, etc.