The classical approach of dam site investigation was often carried out by a team of specialists. However, it is hardly possible to survey all potential areas as it requires much resource. Therefore, this study initiated to identify suitable dam site and its hydropower potential by integrating Arc GIS and Multi Criteria Decision Analysis (MCDA) methods in Birr watershed, Upper Blue Nile Basin, Ethiopia. Watershed slope, foundation geology, geological fault, soil erosion rate, land use land cover, soil texture, river proximity, road proximity and elevation range were the factors used to identify suitable dam site for hydropower generation. GIS based sensitivity and weighted overlay analysis with analytical hierarchy process were employed. The sensitivity analysis results indicated that geological fault was very sensitive and elevation range was the least sensitive parameters. 89.4% of the watershed was suitable and moderately suitable for dam site and two potential sites were selected for hydropower production. The relation between elevation-storage-area and the dam features (height and length) have been determined for the selected sites. The reservoir useful life, by considering sedimentation, has also been estimated and it is about 80 yrs for site 1 and 100 yrs for site 2. The technical installed capacity of firm power, median power and mean power produced from the most preferable dam site selected by this study were 22.42 MW, 66.13MW and 72.45MW respectively. In general, by integrating GIS with the MCDA method, it is possible to extract valuable information to identify dam site and to prepare suitability map with minimum resources.