Revenue allocation among the three tiers of government in Nigeria has been a subject of hot debate because of the political nature of the exercise. Several attempts made by various administrations to evolve an acceptable and all-embracing revenue allocation formula for the country are yet to create the desired rapprochement among contentious groups. This paper examines the issue of revenue allocation and identified major challenges that are embedded in this as well as outlining prospects for it in Nigeria. The study employs both descriptive and historical methods to comprehend the subject under discussion. It is the position of the paper that in a bid to resolve the controversial issues surrounding the contentious revenue allocation in Nigeria, a high level of fiscal decentralisation is required to replace the unfair revenue sharing formula currently in operation. Besides recommending a substantial review of the fiscal system, the pa