Uncertainty in software development and business environment and the need to increase thespeed of development have driven organizations to search for methods that are responsive toboth change and speed. Providing iterative development, agile development involvescustomers and users through different phases of development, and delivers frequent releasesof software to customer while receives the corresponding feedback. Using this approach, agiledevelopment thus aims at addressing mentioned issues of speed and uncertainty whiledeveloping only what customer needs from the beginning of the project. On the other hand,distributed software development is used in many organizations to reach global talent andglobal market. The problems associated with distributed software development such as lack ofenough communication and team coherency, have forced project managers to combine it withagile to mitigate these social problems. This study focuses on distributed agile development,its suitability for a typical project and its challenges and deficiencies. Text analysis andinterviews using qualitative methods are used in this scientific research work. From thetheoretical view point, different text covering agile methodology, distributed development andcombination of them were considered. This study covered two parts: first, an evaluation ofagile and distributed development opportunities and problems to help determine whether ornot distributed development is suitable for a project and second, considering the challengesonce starting to use this method and practices required to regard them. For the empirical part,the focus was put on Volvo IT employees by having seven interviews with members who arecurrently active in distributed agile development. These interviews were used to compare andverify the finding of the theoretical part. The results of the study were categorized into twosections. In the first part, important elements required to verify the suitability of using thismethod are provided. The recommended factors for this evaluation are cost, productivity,customer, team structure, etc. In the second part, the challenges of using distributed agiledevelopment were categorized into four parts: (a) challenges of selected agile method, whichthe focus in this study is Scrum, (b) challenges with time-zone differences, (c) communicationchallenges and (d) finally team building challenges. The required practices to address thesechallenges were also provided. / Program: Masterutbildning i Informatik