The present study was conducted to observe the seasonal variation in aflatoxin M1 and nutritional quality of milk along informal marketing chains. Milk samples (485) were collected from three different chains over a period of one year. The average concentrations of aflatoxin M1 during the autumn and monsoon seasons (2.60 and 2.59 ppb) were found to be significantly higher (standard error of the difference, SED = 0.21: p = 0.003) than in the summer (1.93 ppb). The percentage of added water in milk was significantly lower (SED = 1.54: p < 0.001) in summer (18.59%) than in the monsoon season (26.39%). There was a significantly different (SED = 2.38: p < 0.001) mean percentage of water added by farmers (6.23%), small collectors (14.97%), large collectors (27.96%) and retailers (34.52%). This was reflected in changes in milk quality along the marketing chain. There was no difference (p = 0.178) in concentration of aflatoxin M1 in milk collected from the farmers (2.12 ppb), small collectors (2.23 ppb), large collectors (2.36 ppb) and retailers (2.58 ppb). The high levels of contamination found in this study, which exceed the standards set by European Union (0.05 ppb) and USFDA (0.5 ppb), demand radical intervention by regulatory authorities and mass awareness of the consequences for consumer health and safety.