Livestock farming has a crucial role in the livelihoods of over 8 million rural families, mostly smallholders with three or fewer cattle or buffaloes. However, they face numerous constraints that limit productivity and returns on their livelihoods. This study investigates the socio-economic dynamics, livelihood challenges linked to dairy farming, and gender roles of smallholder milk producers in District Vehari, Punjab, Pakistan. Understanding the interconnectedness of livelihood and gender gaps is crucial for developing effective policy interventions to ensure sustainability, equity, and resilience in this sector. A quantitative, cross-sectional survey design was employed to collect data from 200 respondents using structured questionnaires. Results revealed that most farmers were middle-aged (Mean = 43.8 ± 10.2 years), with low education levels (23% illiterate) and small own landholdings (Mean = 3.8 ± 2.1 acres). The average herd size was 4.8 ± 2.5 animals, while 71% deprived of extension services and 64% lacked access to credit. Major livelihood challenges included fluctuating milk prices (M = 4.48), seasonal fodder scarcity (M = 4.28), and livestock disease outbreaks (M = 4.35). Gender analysis revealed that women were highly involved in operational tasks such as milking (M = 4.35) and shed cleaning (M = 4.42), whereas men dominated the decision-making processes and markete related tasks. Multiple regression analysis indicated that landholding (B = 2,450, p = 0.000), herd size (B = 1,870, p = 0.001), and access to extension services (B = 3,200, p = 0.001) significantly predicted household income (R² = 0.467). Findings highlight the need for gender-inclusive policies, improved veterinary services, and organized milk marketing systems to enhance the sustainability of small farmers.