Context: Global software development is the emerging trend in today’s world as it provides the software companies with certain advantages like access to skill and cheap labor, low development cost etc. There are also many challenges and risks involved in globally distributed software project as compare to co-located projects like communication, coordination and control etc. due to geographical separation. There is also a recent interest in applying agile methods in offshore projects in order to minimize certain offshore challenges. Agile methods in collocated environment demands high communication, coordination and collaboration between the team members. However implementing agile methods in distributed environment is beneficial and challenging too, because of inherited GSD challenges. Therefore, it is necessary to carefully understand the benefits and challenges of applying agile methods in distributed project before actually initiating the development. Objectives: This research study aims to look at current empirical evidence regarding benefits and challenges of applying agile methods in offshore projects, in order to understand it properly. Furthermore, we have examined that which of the benefits and challenges reported in literature can be seen in practice. This helped us in finding out the similarities and differences between the benefits and challenges that are reported in literature and in practice. Methods: To fulfill our aims and objectives we have first conducted the detailed systematic review analysis of the empirical studies from year 2000-2010. The systematic review approach helped us to collect and summarize the empirical data available regarding the benefits and challenges of applying agile methods in offshore projects. The research studies were identified from the most authentic databases that are scientifically and technically peer reviewed such as Inspec and Compendex, IEEE Xplore, ACM digital library, Springer Link, Science Direct, Google Scholar, Scopus, ISI Web of Knowledge and Willey Inter Science Journal Finder. Furthermore, industrial survey was conducted in order to identify whether the benefits and challenges enlisted in literature can be confirmed by practitioners. This helped us in determining the similarities and differences between benefits and challenges that are reported in empirical literature and industrial survey. Results: From systematic review results, we have found the list of benefits and challenges of most applied agile practices such as daily scrum meetings, sprint planning meetings, sprint review meetings, retrospective meetings, pair programming, short release and on-site customer. The most common benefits related to above identified agile practices are early problem identification, project visibility, increase communication, coordination and collaboration, trust, clarification of work and requirements, early client feedback and customer satisfaction. Similarly the most common challenges associated with above identified agile practices are lack of linguistic skills, culture differences and temporal differences. From survey result, it was found that the majority of benefits and challenges identified through literature review are prevalent in software industries to some extent. We were able to identify the benefits and challenges of agile practices such as daily scrum, sprint planning meetings, sprint review, retrospective meetings and short release. The most common benefits of above identified agile practices highlighted by survey participants are project visibility, early problem identification, increase coordination, opportunity for knowledge sharing and transferring, immediate feedback from client, and opportunity for understanding the task properly. Similarly the most common challenges identified by survey participants are language problems, temporal difference and difficult to explain and understand problems or issues over communication technologies. However, there are certain challenges like trust and culture issues, which have received most attention in the empirical literature, but are not identified by majority of industry respondents. Conclusions: From the information attained so far regarding the benefits and challenges of agile methods in offshore projects, we observed that there is an emerging trend of using agile methods in offshore projects and practitioners actually found it beneficial. The benefits of agile practices does not achieve straightaway there are certain challenging factors of GSD too, which can restrict the implementation or make the methodology not useful such as communication, coordination and collaboration. These challenges are usually occurred due to geographical separation, lack of trust and linguistic skills, culture difference etc. The presented work add contribution in a sense as to the best of our knowledge no systematic review effort has been done in this area with specifically focuses on highlighting the benefits and challenges. From survey results we found that majority of benefits and challenges highlighted by survey participants are to some extent same with what we have already studied in literature. However there are certain important challenges which have received most attention in empirical literature but were less identified by the survey participants like trust issue and culture difference. The benefits and challenges identified through industrial survey do not add much information into our attention. This does not mean that all possible benefits and challenges of applying agile methods in offshore project have been explored. The responses which were received from industry practitioners were quite few to make any kind of arguments. There is a probability that we missed the important benefits and challenges related to particular agile practices during our industrial survey. Therefore we conclude that a much thorough and inclusive answers should be required to identify the benefits and challenges of applying agile methods in offshore projects.