Dairy cooperative movement is a viable strategy to reduce poverty and enhance higher incomes of the smallholder farmers. Most of the studies so far conducted were emphasizing on the performance and determining factors of smallholder farmer’s participation in diary cooperatives; however, assessment of the impact of dairy cooperatives on the income of smallholder farmers was neglected. Therefore, this study was proposed to analyze determinates of dairy cooperative membership and its impact on household income. The dairy cooperatives were selected using simple random sampling technique through lottery method. The study uses cross-sectional data collected from 266 dairy farmers through an household survey. A binary probit and endogenous switching regression models were used to analyze determinate factors of dairy cooperative membership and its impact on household income, respectively. The results of probit model revealed that dairy farm experience, labor force, livestock holding, training participation, market information, number of improved cow ownership, and availability of neighbor dairy cooperative members were positively and significantly associated with dairy cooperative membership decision. However, Landholding size and distance to the dairy cooperative were negatively and significantly associated with dairy cooperative membership decision. The Endogenous switching regression model result showed the income of member households increased by 6188.571 Ethiopian Birr due to membership in dairy cooperatives. For the non-members, the household income could be increased by 32105.2 Ethiopian Birr if they had been members of the dairy cooperative; which indicates that there is a significant association between dairy cooperative membership and household income. Lack of milk processing facilities and high cost of crossbreed dairy animals were the critical internal and external constraints of dairy cooperative performance based on Hennery Garrets ranking. Therefore, dairy cooperatives, government, and non-governmental organizations should work on fulfilling the required milk processing facilities to reduce milk loss and improve dairy cooperative performance. Keywords: constraint, dairy cooperative, endogenous switching, household income, impact