The aim of this study is to assess factors that affect the watershed development and the Impact of Watershed Development on livelihood of rural farm households in Burie Zuria District, and to draw possible conclusions and provide policy suggestions. The source of data which is used in the study comes from primary and secondary data. The study used multi-stage sampling procedure to select sample households to distribute survey questioners for analysis. Using systematic random sampling, 147 Households (program users) and 175 program non-users are selected randomly from 1651sample households in six sample kebeles of Burie Zuria District from identified six micro-watersheds. Sample household-based interview and key informants’ interviews were used in order to collect the data. In the study, demographic characteristics, social services, negative and positive relations of different variables were assessed. The study was applied both qualitative and quantitative data. The researcher was uses STATA Version15 for the purpose of estimating demographic and expected outcome results extensively for the analysis of the data collected. The determinant factors that affect the watershed development are estimated based on the watershed development indicators and different household participation parameters using Heckman two stage and logistic regression models. And the impact of watershed development on livelihood of rural farm households is evaluated by comparing the watershed participant and non-participant households. Hence, this study applies a propensity score matching technique, which is appropriate when cross-sectional data are used and also revealed by using Heckman two stage regression model. The result revealed that, Watershed development program in the study area has brought positive impact on livelihood diversification and annual household income score for program user.