This study examined the relationship between capital market and industrial sector development in Nigeria, utilizing annual time series data covering the period from 1980 to 2012. The study adopted both descriptive and analytical methodology in its investigation. The descriptive methods were used to analyze trend performances of the variables captured in the study. The analytical methodology employed modern econometric techniques such as the unit root test, co-integration test, granger causality test and the error correction mechanism (ECM) in the estimation of the relevant relationships. The results of the co-integration test showed that there existed a long run equilibrium relationship among the variables. The results of the granger causality test as presented showed that there is a bi-directional relationship between industrial output and market capitalization and between industrial output and number of deals, but a unidirectional causality relationship running from industrial sector development to value of transaction. The results of the short run dynamics revealed that capital market has positive and significant impact on industrial output in Nigeria via market capitalization and number of deals. On the other hand, value of transaction has negative and significant impact on industrial output in Nigeria during the evaluation period. The results also showed that real gross domestic product has a positive and significant impact on industrial output in Nigeria, while exchange rate and gross domestic investment have negative and significant relationship with industrial output in Nigeria. The study therefore recommended that the government should implement appropriate reform policies aimed at ensuring efficiency in the workings of the stock market in Nigeria. Also, there is need to reduce the cost of raising capital by firms on the stock as high cost and other bureaucratic delays could limited the use of capital market as veritable source of raising funds for investment.