Education system plays a very crucial role in any country towards achieving a sustainable development and strengthening social, cultural, historical and integral development, and is often called as the back born of the society. Producing competent graduate, professional or technical expert and a responsible citizen enriched with social and cultural values, which eventually enhances the quality of a country's workforce, is one of the ways the education system contributes to the development of a country. Giving the due recognition to the importance of the education system that paves the way for integral development of a country, some countries have practiced and promotes a free education policy. The purpose of this paper is to explore the salient features and its evolution of the free education system in Sri Lanka and its emerging challenges for policy makers. This paper also aims at suggesting alternative strategies to overcome the challenges that are emerging from the changing global market context by pooling of views and ideas of academics and other experts in the field of education. This study expects to suggest alternative strategies to overcome the emerging issues in the free education system that would add value to the policy makers to objectively develop future strategies and policies relating to the education system of the country. In order to achieve the aforesaid objective, this study explores the existing literature relating to education systems and experts' views and authors' own experience as academics. This study demonstrates that the Sri Lankan education system requires an urgent reform to revise on a holistic approach to address emerging issues in the areas of policy making level, implementation level and supervisory and regulatory level. This study recommends providing annually a six percent from the GDP for the state education, eliminating disparities between rural and urban popular schools, timely revision of general school curriculum in order to make it best fit the changing world, promoting student centered and participatory learning environment, protecting the higher education right of the qualified students who are not absorbed by the state universities and protecting and enhancing the economic, career and social welfare of the school teachers as the key areas that the policy makers must pay their close and urgent attention.