Significance Overuse of agricultural chemicals has resulted in enormous damages to environmental quality and human health in China. Reducing the use of agricultural chemicals to an optimal level is a crucial challenge for the sustainable development of agriculture. We demonstrate that small farm size (in China, typically ∼0.1 ha for each parcel) is strongly related to overuse of agricultural chemicals. Farm size increases with economic development in many other countries, but this is not observed in China due to national policies. Increasing farm size by removing policy distortions would substantially decrease both the use of agricultural chemicals and their environmental impact, while increasing rural income in China.