The early evidence of domesticated animals and human–animal interaction in South Asia can be traced back to the seventh millennium BCE; however, our understanding of their use is incomplete and limited to the analysis of animal bones from archaeological sites. By the third millennium BCE with the emergence of the Indus Civilization, cattle and water-buffalo became the primary domesticates and outnumbered any other animals at the majority of the Indus settlements. Based on the analysis of skeletal remains and ethnographic data, a number of studies have suggested that cattle and water-buffalo were utilized for their meat, dairy, hides, and other labor-oriented jobs. While some of these claims are backed by empirical data, others are primarily discussed as hypotheses, for example, the exploitation of dairy. In this paper, by analyzing the absorbed lipid residues from fifty-nine ceramic sherds recovered from an agro-pastoral settlement that was occupied during the peak of the Indus period around mid- to late third millennium BCE, we provide the earliest direct evidence of dairy product processing, particularly from cattle and possibly from some water-buffalo. By providing direct evidence of animal product processing, we identify the use of primary domesticated animals and other resources in the diet during the Indus Civilization.