This paper examines how economic activity and market participation are distributed across space. Applying a non-parametric von Thunen model to Nepalese data, we uncover a strong spatial division of labor. Non-farm employment is concentrated in and around cities while agricultural wage employment dominates villages located further away. Isolated villages revert to self-subsistence. Vegetable and cereal production for sale take place in the vicinity of urban centers while oilseeds and other commercial crops are more important at intermediate distance. Findings are consistent with the von Thunen model of concentric specialization, corrected to account for city size. Spatial division of labor is closely related to factor endowments and household characteristics, especially at the local level.