The population and diversity of fungal species and levels of aflatoxin contamination were investigated in 228 marketed peanut samples; 140 from formal and 88 from informal markets, in Kericho and Eldoret towns of Kenya. Ground peanut samples were cultured on Modified Dichloran Rose Bengal (MDRB) agar while aflatoxin level was quantified based on indirect competitive ELISA. Correlation between the incidence of major aflatoxin-producing fungal species and aflatoxin levels was also established. Fungal species commonly isolated from the peanut samples included Aspergillus flavus L strain, A. flavus S strain, A. parasiticus, A. tamarii, A. caelatus, A. alliaceus (all of Aspergillus section Flavi) and A. niger. Fungi isolated in low frequency included Fusarium spp., Penicillium spp., Mucor spp. and Rhizopus spp. Aflatoxin levels in peanut products ranged from 0 to 2345 μg/kg in raw peanuts, 0 to 382 μg/kg in roasted coated peanuts, and 0 to 201 μg/kg in roasted de-coated peanuts. Overall, levels of total aflatoxin were higher in samples from informal (mean = 97.1 μg/kg) than formal (mean = 55.5 μg/kg) market outlets. There was a positive and significant correlation (R2 = 0.63; p ≤ 0.05) between aflatoxin levels and the major aflatoxin producing fungi in raw peanuts from formal markets in Eldoret town. Additionally, total aflatoxin in raw peanut samples from informal markets in Kericho was positively and significantly correlated (R2 = 0.81; p ≤ 0.05) to the population of A. flavus (L and S strains). In roasted coated peanuts sampled from formal market outlets in Eldoret, aflatoxin levels correlated positively and significantly (R2 = 0.37; p ≤ 0.05) with A. flavus S strain. There is need to create awareness among peanut traders and consumers on proper handling of peanuts and health risks associated with consumption of unsafe peanut products.