Globally countries have invested huge amounts of money in education. In Kenya Free Secondary Education (FSE) policy was introduced in 2008 to improve retention rates. In Emuhaya and Vihiga sub counties retention rates from 2008 to 2012 were 53.1%, 55.8%, 53%, 56% and 55.4% respectively for Emuhaya sub county; and 54.6%, 58.3%, 56.5%, 57% and 55% for Vihiga sub county which were lower than national retention rates of 84.1%, 86.2%, 87.4%, 88% and 88.3% for the same period. The objective of the study was to determine the impact of Free Secondary Education policy on retention rates in Emuhaya and Vihiga sub counties. A conceptual framework based on investment choices by Psacharopoulos and Woodhall (1985) was adopted with FSE policy being the independent variable and retention rates as the dependent variable. The study revealed that there was a moderate and positive relationship between Free Secondary Education policy and retention rates with coefficient of 0.613 which was significant at a p-value of 0.05. It accounted for 37.3% of the variation in retention rates. The study concluded that Free Secondary Education policy enhanced retention rates and improved internal efficiency of public secondary schools in Emuhaya and Vihiga Sub Counties. The study recommended that FSE funds be reviewed further upwards and be disbursed on time to schools in order to increase retention rates. The findings of this study are useful to stakeholders in education as it informs them on the need to review further upwards the policy so as to achieve its objectives fully.