The aim of present study was to determine carcinogenic metabolite aflatoxin M1 (AFM1) in milk and to investigate the effects of low doses of dietary aflatoxin B1 (AFB1) on physiological biomarkers with special reference to udder health and serum parameters of lactating goats. Thirty two lactating Beetal goats of 3-4 y age, weighing 40.91±0.285, were randomly selected, and equally divided into four groups. Group A was kept as control while animals of groups B, C, and D were individually fed daily with 30µg, 40µg and 50µg of AFB1, respectively, through naturally contaminated cotton seed cake for a 10 days period. Milk samples were tested for aflatoxin M1 (AFM1) through high performance liquid chromatography (HPLC), somatic cell count (SCC) and total viable count (TVC). Blood samples were analyzed for aspartate aminotransferase (AST), alanine aminotransferase (ALT) and alkaline phosphatase (ALP) levels. Aflatoxin M1 (AFM1) was detected in all milk samples of the Group B, C, and D in concentration higher than 0.05 ppb. The AFB1 was excreted in milk as metabolite AFM1 @ 1.35-1.59%. Udder health and milk quality deteriorated as SCC and TVC increased. Levels of serum enzymes AST and ALT increased with ingestion of dietary AFB1. It is concluded that ingestion of very low level of AFB1 by lactating goats results in excretion of carcinogenic metabolite AFM1 in milk beyond the permissible level. Dietary AFB1 has role in sub-clinical mastitis and causes injurious effects on general health status of lactating goats.