Bt cotton has been cultivated in China for a decade. Studies have been conducted to assess theimpact on productivity and pesticide use. Limitations of these studies are the short time period considered and the reliability of data. This paper presents findings from monitoring 150 Bt cotton farmers in Shandong province in 2002 and 2005. Descriptive analysis reveals that pesticide use increased while seed price and Bt toxin concentration decreased. The Bt variable was consistently insignificant in the estimated production function with damage control specification and a fixed effects model. There is indication that poor standards in Bt varieties have caused this result. Due to market imperfections and emergence of a largely unregulated seed market for genetically modified crops, Bt toxin levels may be below the threshold required to effectively control target pests. Furthermore, rising cotton prices may have created additional incentive to increase pesticide applications. The emergence of secondary pests calls for further in-depth studies that should include local agro-ecological conditions. Our results indicate that farmers with more experience in Bt cotton cultivation apply less pesticides, confirming the findings of other studies that farmer knowledge and understanding of the Bt technology is an important condition for its success.