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Bangladesh, like other South Asian countries, has a dairy system characterized by small-scale operations, integrated with crops and other off-farm activities. Dairying is considered a major source of nutrition and income, and offers good opportunities for both farm families and non-farm rural and urban employment. Consequently, several dairy development programmes and models have been implemented for improving the dairy sector. The gradual shift from subsistence to market-oriented dairy units demands more advanced knowledge and dairy technology. However, adequate information about the dairy sector and its technological advancement is scanty, which increases the need to identify opportunities for technical and institutional development. This paper updates information on key changes in the dairy sector and the characterization of dairy production systems in Bangladesh and considers their implications for South Asian countries. Milk demand, measured by per capita consumption, is increasing by 4% per year, which is higher than the growth in milk production (3.6%). This has led to a continuous widening of the gap between milk supply and demand. Institutional support and policies play a major role in narrowing this gap and should therefore be considered in developing strategies for dairy development.