Assessment literacy of teacher educators is important for effective teaching learning process. It provides sound foundation for appropriate classroom practices which could contribute positively to prospective teachers academic achievements. The purpose of this study was to investigate the relationship of teacher educators‘ assessment literacy and classroom assessment practices with their students‘ academic achievement. The objectives of the study were to find out teacher educators‘ assessment literacy, investigate teacher educators‘ classroom assessment practices, find out students‘ academic achievement, assess the difference of male and female teacher educators on assessment literacy, and to find out the relationship of teacher educators‘ assessment literacy and classroom assessment practices with their students‘ academic achievement. The research questions and hypotheses were made which has directed the study properly. This study was quantitative, descriptive and correlational in nature; and all 409 teacher educators and 817 prospective teachers of 20 Regional Institutes of Teacher Education of Khyber Pakhtunkhwa and students of 33 Government Colleges for Elementary Teachers of Punjab constituted the population of the study. Through stratified proportionate random sampling technique, 205 of teacher educators and 205 prospective teachers were selected for data collection. The total study sample comprised 410 respondents. This study was conducted in the year spring, 2016. To investigate the sample group of the study an Assessment Literacy Test and Classroom Assessment Practices Questionnaire were adapted. These instruments were pilot tested and were used to collect data from the respondents. The collected data were analysed through Mean scores, Standard Deviation, independent sample t test, one way ANOVA and Pearson correlation techniques using Statistical Package for Social Sciences version 20 software. The results indicated that majority of teacher educators‘ had an average level of assessment literacy and they followed mostly traditional classroom assessment practices. Majority of teacher educators‘ were of the view that they had not attended any in-service training in assessment. Furthermore, a significant positive relationship was measured between assessment literacy and classroom assessment practices of teacher educators; however, there was no significant relationship among teacher educator assessment literacy, classroom assessment practices and students‘ academic achievement. Based on the results of the study RITEs and GCETs were recommended that a series of workshops with the assistance of teacher education departments‘ faculty of universities may be arranged to enhance the professional competence of teacher educators in the domain of assessment. It was also recommended that teacher educators may not confine themselves to traditional assessment practices and they may adopt alternative assessment practices in assessing students learning. Furthermore, it was recommended that the Federal Ministry of Education and Professional Training may constitute National Assessment Wing under the umbrella of National Curriculum Council for the advancement of assessment literacy and practices in the country.