Irrigation development has been identified as an important tool to stimulate economic growth and rural development, and is considered as a cornerstone of food security and poverty reduction in Ethiopia. While a lot of effort is being exerted towards irrigation development little attempt is being made toward the performance and sustainability of already constructed schemes. Therefore, the major concern of this study is to assess the irrigation efficiency of the scheme from performance indicators and institutional aspect. To realize these objectives structured household survey questionnaires, interviews, focus group discussions, field observations and literature were used. For household survey questionnaires a total of 32 sampled households were random selected from head, middle and tail command area beneficiary farmers. This study was initiated to assess and evaluate the performance of Muga small scale irrigation scheme using internal performance indices such as conveyance efficiency, application efficiency, deep percolation ratio overall scheme efficiency, maintenance indicators, and assessment of institutional and support services so as to recommend appropriate measures to improve the scheme management and performance. To undertake this study primary data like discharge measurements in the canals, measurement of depth of water applied to the farmers’ field, field observations, interviewing beneficiary farmers, and determination of moisture contents of the soil before and after irrigation, and secondary data werecollected from the secondary sources. The results obtained showed that the main canal conveyance efficiency of main canal one and main canal twowere 91%and 84.23% respectively.The conveyance efficiency of the secondary canal one andsecondary canal twowas 55.44% and 53.46% respectively. The main canal efficiency was in the acceptable range. However, the conveyance efficiency of the secondary canals was found to be very low when compared to accepted standards. The Application efficiency result on three farmers’ farm located on head, middle and tail of the command were 29.4%, 44.9% and 70.2% respectively. These values were also found to be below the recommended value (60%). The sustainability of the scheme is also in doubt in that currently it is irrigating only 76.3 percent of the developed land. All these show that the scheme is performing below the intended level. In conclusion, the overall performance of the scheme is rated as low. Therefore proper institutional setup, scheme monitoring and upgrading needs to be in place and WUA should be empowered in order for it to discharge its responsibility.