The main objective of this research is to investigate the influences of penalty and reward on household' intention towards separating recyclable materials at source. people participation in recycling activities is the most important factor of prosperity of recycling programs; therefore investigating recycling from psychological aspect is a proper approach to detect the fundamental factors affecting a successful recycling program. this research used Reasoned Action Approach to investigate the influences of the penalty and reward on households' recycling intention in Federal Territory of Kuala Lumpur. For this purpose, the mediating roles of psychological factors namely attitude,subjective norms, perceived behavioral control, moral norms, and consequent of recycling were investigated. 384 questionnaires were distributed and and data were analyzed by statistics; Pangaea of social science (SPSS). Findings showed that, attitude, subjective norms, perceived behavioral control, moral norms, and consequent of recycling partially mediate penalty and reward on recycling intention. Moreover, findings showed perceived behavioral control as the weakest factor affecting recycling intention, also it showed the strong effect from penalty on perceived behavioral control; therefore, based on the literature review it is suggested to apply penalty to change behavioral control beliefs in order to increase household' recycling intention which is crucial and useful for designing, enforcing, and administrating financial incentive based programs like "Pay-As-You-Throw' in Federal Territory of Kuala Lumpur.