Under the emerging rural development paradigm, we argue that to be multifunctional an activity must add income to agriculture, it must contribute to the construction of a new agricultural sector that corresponds to the needs of the wider society and it must reconfigure rural resources in ways that lead to wider rural development benefits. By evaluating UK rural policies on the basis of whether or not they attempt to meet these conditions, this paper shows that an implicit recognition of agriculture's multifunctional character has occurred recently through the shift from a sectoral to a regional and territorial perspective that reintegrates farming into rural development. However, in practice, and especially in England, the UK government has been unable to turn multifunctional activities into a real rural development option. In fact, by continuing to support agri-industrial/retailer interests on the one hand, and post-productivist--environmental and amenity--interests on the other, the State is governing mostly by setting up competitively organized "projects" and schemes that continue to justify the concentration (and limitation) of resources allocated to agriculture. Based upon a critique of policy developments over the past decade, this paper emphasizes the need for more innovative forms of state innovation that provide opportunities for new, creative and more spatially embedded forms of supply and demand management in agri-food. In the conclusions, the paper also argues that more critical research is needed to uncover the existing and potential role of both governments and producer networks in progressing sustainable rural development through agricultural multifunctionality.