Sri Lanka was well known as agricultural based economy, which was more focused on paddy, tea, rubber and coconut. However recently it has changed it direction towards knowledge based economy, passing by the industrial based economy. Information and communication technology industry has a critical role in improving productivity and economic growth in knowledge based economy. At the same time this industry has create many new employment opportunities, contributed to increase the earnings from export market and attracting foreign investors for investments. This paper discussed the nature of the information and communication technology industry in Sri Lanka, challenges and opportunities available, role players in the industry, information and communication technology infrastructure development in the country and finally it discussed the prospects and strategies for future development of the industry. Study considered secondary data sources which includes information related to the Sri Lankan information and communication technology industry. These include journal articles, proceedings of conferences, and survey publications of different bodies relating to the Sri Lankan ICT industry.