Lesotho is geographically surrounded by South Africa and economically integrated with it as well. The economy of Lesotho is based on agriculture, livestock, manufacturing and mining, and depends heavily on inflows of workers’ remittances and receipts from the Southern African Customs Union (SACU). The majority of households subsist on farming. The formal sector employment consists of mainly the female workers in the apparel sector, the male migrant labour, primarily miners in South Africa for 3 to 9 months and employment in the Government of Lesotho (GOL). The western lowlands form the main agricultural zone. Almost 50% of the population earn income through informal crop cultivation or animal husbandry with nearly two-thirds of the country's income coming from the agricultural sector. The percentage of the population living below USD Purchasing Power Parity (PPP) US$1.25/day fell from 48 percent to 44 percent between 1995 and 2003. The country is among the "Low Human Development" countries (rank 160 of 187 on the Human Development Index) as classified by the UNDP, with 48.2 years of life expectancy at birth. Adult literacy is as high as 82%. Among the children below the age of 5 years, 20% are under weight.

Lesotho has taken advantage of the African Growth and Opportunity Act (AGOA) to become the largest exporter of garments to the US from sub-Saharan Africa. US brands and retailers sourcing from Lesotho include: Foot Locker, Gap, Gloria Vanderbilt, JCPenney, Levi Strauss, Saks, Sears, Timberland and Wal-Mart. In mid-2004 its employment reached over 50,000 mainly female workers, marking the first time that manufacturing sector workers outnumbered government employees. In 2008 it exported goods worth 487 million dollars mainly to the USA Since 2004 employment in the sector was somehow reduced to about 45,000, in mid-2011, due to intense international competition in the garment sector. It was the largest formal sector employer in Lesotho in 2011. In 2007, the average earnings of an employee in the textile sector were $103 per month, and the official minimum wage for a general textile worker was $93 per month. The average gross national income per capita in 2008 was $83 per month. The sector initiated a major program to fight HIV/AIDS called Apparel Lesotho Alliance to Fight AIDS (ALAFA). It is an industry-wide program providing prevention and treatment for the workers. 

Water and diamonds are Lesotho's significant natural resources. Water is utilised through the 21-year, multibillion-dollar Lesotho Highlands Water Project (LHWP), under the authority of the Lesotho Highlands Development Authority. The project commenced in 1986. The LHWP is designed to capture, store, and transfer water from the Orange River system to South Africa's Free State and greater Johannesburg area, which features a large concentration of South African industry, population, and agriculture. Completion of the first phase of the project has made Lesotho almost completely self-sufficient in the production of electricity and generated approximately $70 million in 2010 from the sale of electricity and water to South Africa. The World Bank, African Development Bank, European Investment Bank, and many other bilateral donors financed the project.

Diamonds are produced at the Letseng, Mothae, Liqhobong and Kao mines, which combined are estimated to produce 240,000 carats of diamonds in 2014, worth $300 million. The Letseng mine is estimated to produce diamonds with an average value of $2172/carat, making it the worlds richest mine on an average price per-carat basis. The sector suffered a set back in 2008 as the result of the world recession but rebounded in 2010 and 2011. Export of diamonds reached $230 million in 2010/11. In 1957, a South African adventurer, colonel Jack Scott, accompanied by a young man named Keith Whitelock, set out prospecting for diamonds. They found their diamond mine at 3,100 m altitude, on top of the Maluti Mountains in northeastern Lesotho, some 70 km from Mokhotlong at Letseng. In 1967, a 601-carat (120.2 g) diamond (Lesotho Brown) was discovered in the mountains by a Mosotho woman. In August 2006, a 603-carat (120.6 g) white diamond, the Lesotho Promise, was discovered at the Letseng-la-Terae mine. Another 478-carat (95.6 g) diamond was discovered at the same location in 2008.

Lesotho has progressed in moving from a predominantly subsistence-oriented economy to a lower middle income economy exporting natural resources and manufacturing goods. The exporting sectors have brought higher and more secure incomes to a significant portion of the population.

The global economic crisis hit the Lesotho economy hard through: the loss of textile exports and jobs in the sector due largely to the economic slowdown in the United States which is a major export destination; reduced diamond mining and exports, including weak prices for diamonds; drop in SACU revenues due to the economic slowdown in the South African economy; and reduction in worker remittances due to weakening of the South African economy and contraction of the mining sector and related job losses in South Africa. In 2009, GDP growth slowed to 0.9 percent.

The official currency is the loti (plural: maloti), but can be used interchangeably with the South African rand. Lesotho, Swaziland, Namibia, and South Africa also form a common currency and exchange control area known as the Common Monetary Area (CMA). The loti is at par with the rand. One hundred lisente (singular: sente) equal one loti.

Lesotho is a member of the Southern African Customs Union (SACU), in which tariffs have been eliminated on the trade of goods between other member countries Botswana, Namibia, South Africa, and Swaziland. Lesotho has received economic aid from a variety of sources, including the United States, the World Bank, Republic of Ireland, the United Kingdom, the European Union, and Germany.