This study investigates the structural changes in western Sri Lanka's agrarian society under the administration of the Dutch United East India Company (VOC). In the areas where peasant agriculture was the predominant form of production, changes in the land tenure system paved the way for a modern system of private property relations. A new class differentiation emerged and the indigenous chiefs turned into powerful landowners. In addition to this, new light is shed on the dynamics of caste formation as a result of the early colonial encounter.