This chapter examines the evolution of Sri Lanka’s development diplomacy in the context of intensifying Japan–China competition in the Indo-Pacific. Drawing on qualitative analysis of policy documents, official statements, media reporting, and secondary scholarship, supplemented by preliminary insights from recent fieldwork, the study analyzes how Sri Lanka engages both Japan’s Free and Open Indo-Pacific-aligned Official Development Assistance and China’s Belt and Road Initiative. The analysis incorporates Robert Putnam’s two-level game theory and Andrew Moravcsik’s Liberal Intergovernmentalism to explain how domestic political dynamics shape foreign policy strategies in asymmetric relationships. While Sri Lanka is the primary focus, comparative examples from other Indo-Pacific small states, including the Maldives and Fiji, illustrate the broader applicability of structured agency. The findings contribute to theoretical debates on small-state diplomacy, aid politics, and the relational nature of development cooperation.