The economy of the Fazilka is based on agriculture. Before partition, it was a major wool market. Traders used to export wool to Britain via the ports at Karachi in Sindh. By 2007, wool production had decreased to about 10% of the production before partition. The area around the town grows high quality cereals (wheat, rice, and others). A hybrid variety of citrus fruit known as 'Kino' is grown in this region. The surrounding areas also produce guava and cotton.
The town is home to heritage cottage industries such as the production of woven strings (Waan) fabricated from Sarkanda grass acquired from the bank of the river Sutlej. This is a labour intensive low profit cottage industry.
The Fazilka region observes almost all important major festivals of India, including Diwali, Dushehra, Holi, and Gurpurab.
Fazilka is known for a style of jhumar dance propagated by the late Baba Pokhar Singh (1916–2002). Pokhar Singh's family had migrated from the Montgomery district of Western Punjab, and they claimed to represent the "Ravi" style of jhumar. However, Fazilka had its own style of jhummar (which they refer to as the "Satluj" style). Therefore, at least two regional styles were mixed in everyday life, and in his jhummar routine (which was basically the same each time, and which family and friends still perform today), Pokhar identified several other regional actions.
The first railway line through the town was setup in 1898 on the occasion of the Diamond Jubilee of the accession of Queen Victoria. Fazilka was connected by railway to McLeodganj (now in Pakistan and renamed Mandi Sadiqganj) on the route to Bahawalnagar and then to Bahawalpur. Fazilka was connected by railway to Amruka (now in Pakistan) through Chaanwala. The tracks from Fazilka to McLeod Ganj and from Fazilka to Chaanwala are now closed, perhaps uprooted.
Fazilka railway station is connected to Ferozepur and Bhatinda junctions of Northern Railways. A new railway line to Abohar is being constructed and will shorten the distance to Bikaner by over 100 km.