Despite the growing interest in rural tourism in rural communities, there has been little investigation of how to introduce this new activity into conventional farm management while taking advantage of multifunctionality in agriculture. Considering rural tourism as a new farming activity that transforms a positive externality of multifunctionality into an income-generating opportunity (or the internalisation an of externality), this paper examines the evolutionary process of farm management by focusing on a farm household that operates a rural tourism business in Hiroshima, a mountainous area in western Japan. The examination of this household pioneering rural tourism showed that the rural tourism activity was a product innovation in farming whereas a traditional innovation in farming techniques was a process innovation. The former evolved from an interaction between multifunctionality and a rural tourism activity. Therefore, we should put more emphasis on policy that focuses on promoting product innovation in farming especially in the field of rural tourism by farm women.