Question

1. Peanuts grow in the ground.
2. Peanuts grow on the ground.
(Which preposition is correct, 'in' or 'on'? Are both okay?)

Answer 1

"on" means on top of (the ground), on the surface. "in" means just what it says, IN the ground, below the surface.

Answer 2

... so #1 is the correct one.