This review is focused on rural households engaged in livelihood diversification strategies and pursuing livelihood outcomes in Ethiopia. The target is specifically to review the effect of income diversification on livelihood outcomes situation, to review determinants of participation and level of income generated from off/non-farm activities in Ethiopia. In this article review, both published and unpublished materials were employed. In Ethiopia, Agriculture is the main livelihood of most of the population. However, the prevailing capacity of agriculture to sustain smallholder farmers declining due to diverse challenges and risks. As a result, majority of the populations has been poor in multi-dimensional well-being such as food, education, employment and health services. Income diversification activities coined as one of the main strategies to handle all the interrelated problems associated with the economy of rural households. However, the actually engagement in off/non-farm activities is very low. The basic factors influencing the participation of smallholder farmers in non/off-farm are demographic, economic and institutional factors. Therefore, policy makers should give due emphasis to participation of rural household in income diversification activities so as to improve the livelihoods of smallholder farmers.

Keywords: Livelihood diversification strategies, livelihood outcome and rural household