Climate-induced increase in temperature and rainfall variability severely threaten the agricultural sector and food security in the Indian state of Odisha. Climate-smart agricultural (CSA) practices, such as crop rotation and integrated soil management, help farmers adapt to climate risk and contribute to a reduction in greenhouse gas (GHG) emissions. Therefore, this paper examines the impact of CSA practices on yield and income in vulnerable semi-arid districts of Odisha—Balangir, Kendrapara, and Mayurbhanj. We use primary survey data from 494 households collected in 2019–2020, using a multi-stage stratified sampling approach and structured questionnaire. Propensity score matching (PSM) and the two-stage least square method (2SLS) have been used to analyze the impact of CSA on income and productivity. Two instrument variables, namely distance to the extension office and percentage of adopters in a village, are used to control self-selection bias and endogeneity in our model. Both models show a positive and significant impact of the adoption of CSA on farmers’ productivity and income. The study sheds light on the significant contribution of CSA practices in fostering sustainable income growth amid environmental challenges. Overall, our results suggest that small and marginal farmers of Eastern India, a highly environmentally vulnerable area, can significantly improve their income and productivity by adopting CSA technology. Hence, policymakers should scale the adoption of CSA technology through effective extension programs.