In Kenya, Education is funded through cost sharing at all levels. In 2008, the government of Kenya introduced subsidized Secondary Education in public Secondary Schools with the intention of making secondary education affordable and therefore accessible to many. Although all public secondary schools in Bondo sub-county benefitted from the subsidy, cases of school dropout, fluctuating enrolment, child labour, and school age children joining fishing activity, Bodaboda and mining had been on the increase. The purpose of this study was to establish the effects of the subsidy on transition rate from primary to form one in Bondo Sub-county. The objectives of the study were: to establish the effects of the subsidy on student's enrolment; to determine the effects on student's retention; to identify the challenges resulting from the subsidy and to establish the best practices adapted by schools to overcome the challenges. The study assumption was Government subsidy had led to improved progression of standard eight pupils from primary to form one with a positive effect on student enrolment and retention in public secondary schools. The study was guided by a conceptual frame work based on production function theory of Education by Bowles. Highly selected literature was reviewed on the effects of the subsidy on enrolment, retention, challenges resulting from the subsidy and the selected best practices used by public secondary schools to counter the challenges. Descriptive survey design was used in the research. It was conducted in all the 30 public secondary schools in Bondo sub-county, from a study population of 1,650. Saturation sampling technique was used to select 30 principals, 30 deputy principals, 30 guidance and counselling departmental heads and a district education officer; random sampling was used to select 150 form four students. Questionnaires and interviews were used as research instruments. Validity of the instruments was ascertained by two professionals from the department of Curriculum education and Management at Jaramogi Oginga Odinga University of Science and Technology (JOOUST), while reliability was ascertained through a pilot study in three public secondary schools which were not used in the actual study. Quantitative data was analysed using frequency counts while qualitative data was analysed by use of text form. From the findings, government subsidy had led to improved enrolment and retention in form one and two especially in Day Schools with understaffing and overstretched physical facilities being major challenges that faced public secondary schools. In conclusion, government subsidy had not achieved its objective of improving Access, Equity, Quality, Enrolment, Progression and Retention in Public secondary schools. The findings may be significant to the Ministry of Education, Science and Technology (MOEST) and other educational stakeholders for it established the effects of government's subsidy on transition, enrolment, retention, and the challenges faced by public secondary schools due to the subsidy. Based on the objectives, the study had the following recommendations; the government to address factors contributing to decline in enrolment and retention of students in form three and four, the MOEST to induct school managers, administrators, students and the parents on the likely effects of the government fee subsidy to schools.