<p>Addressing the low agricultural production efficiency caused by cropland misallocation is a critical measure for improving the food supply. To achieve agricultural modernization, the development of new farming entities (NFEs) is an important means of optimizing resource allocation. Currently, research on the systematic mechanisms by which the NFEs affect farmers’ cropland allocation and crop production decisions is unclear in mountainous areas. This limits a comprehensive understanding of the relationship between NFEs and farmers, and hinders the improvement of relevant policies. Therefore, based on the market mechanism and technological spillover hypothesis, we constructed a theoretical explanatory framework and used data from 2415 farmers of China’s mountainous areas, employing multiple econometric models to empirically estimate the impact of NFEs on farmers’ cropland allocation and crop production decisions. The results indicate that NFEs can significantly promote farmers’ cropland transfer and non-grain crop production and reduce cropland abandonment. NFEs help promote cropland transfer and mitigate cropland abandonment by enhancing cropland transfer markets at village level. Furthermore, the impacts of NFEs are stronger in villages closer to county center. They also have a stronger impact in villages with more flat cropland, except for abandonment. Additionally, to improve agricultural development in mountainous areas, it is recommended to attract NFEs into agricultural production by investing in infrastructure, increasing land capital input to reduce agricultural production costs, and simplifying land transfer procedures.</p>