Fertilizer is essential for crop production improvement. Fertilizer cost share in farm business is about 10 percent only, but fertilizer distribution is under government's control especially for small-holders. Fertilizer subsidy policy deals with various problems and it requires some changes. This study aims to analyze fertilizer subsidy, namely formulating policy options and alternatives for fertilizer direct-subsidy (SLP). This study employs secondary data and related information from the case studies of pilot projects in Lombok Island (NTB Province) and Karawang Regency (West Java Province). This study uses quantitative analysis and qualitative descriptive approaches. Three options of policy changes in fertilizer subsidy are (i) shifting SLP to output price subsidy, (ii) SLP, and (iii) gradual subsidy abolition. SLP policy should be implemented effectively with following alternatives: (i) SLP pilot projects to be implemented in Java and rice-producing centers outside Java and non-rice producing centers outside Java, (ii) targeted farmers to receive subsidy are poor and almost poor with certain land holding size, (iii) indicators of poor and almost poor farmers and criteria of the restricted provinces to be established accurately, and (iv) restriction to be implemented in Java and rice-producing centers outside Java, but no restriction in non-rice producing centers outside Java.