Artificial Intelligence (AI) is rapidly emerging as a transformative force in rural development, particularly through its integration into agriculture. In the context of smart villages, AI enhances productivity, sustainability, and resilience by enabling precision farming, real-time decision-making, and efficient resource management. Agriculture remains the backbone of rural economies, especially in countries like India, where a significant portion of the population depends on farming for livelihood. However, persistent challenges such as climate variability, low productivity, fragmented landholdings, and limited access to markets continue to hinder rural progress. This study explores how AI-driven agricultural transformation can serve as the foundation for building smart villages. It analyzes applications such as predictive analytics, crop monitoring, soil health assessment, pest detection, and supply chain optimization. Beyond agriculture, AI contributes to rural governance, healthcare, education, and financial inclusion. This study highlights that AI-enabled smart villages are not merely technology-driven spaces but holistic development ecosystems that integrate innovation with inclusivity, sustainability, and community empowerment. This study further examines the opportunities, challenges, and policy requirements, emphasizing digital infrastructure, institutional support, and local participation. Drawing insights from regions such as Karnataka, this study presents a scalable model for rural transformation. The study concludes that AI, when implemented responsibly, can significantly enhance rural livelihoods and create resilient, self-sustaining village economies.