Uncertainty in software development and business environment and the need to increase the speed of development have driven organizations to search for methods that are responsive to both change and speed. Providing iterative development, agile development involves customers and users through different phases of development, and delivers frequent releases of software to customer while receives the corresponding feedback. Using this approach, agile development thus aims at addressing mentioned issues of speed and uncertainty while developing 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 and global market. The problems associated with distributed software development such as lack of enough communication and team coherency, have forced project managers to combine it with agile 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 and interviews using qualitative methods are used in this scientific research work. From the theoretical view point, different text covering agile methodology, distributed development and combination of them were considered. This study covered two parts: first, an evaluation of agile and distributed development opportunities and problems to help determine whether or not distributed development is suitable for a project and second, considering the challenges once 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 are currently active in distributed agile development. These interviews were used to compare and verify the finding of the theoretical part. The results of the study were categorized into two sections. In the first part, important elements required to verify the suitability of using this method are provided. The recommended factors for this evaluation are cost, productivity, customer, team structure, etc. In the second part, the challenges of using distributed agile development were categorized into four parts: (a) challenges of selected agile method, which the focus in this study is Scrum, (b) challenges with time-zone differences, (c) communication challenges and (d) finally team building challenges. The required practices to address these challenges were also provided.