This study evaluates the effect of nonfarm income on monetary and multidimensional poverty in rural Ethiopia as well as consumption inequality. Gini coefficient, Lorenz curve, Atkinson and General Entropy measures are employed to estimate the effect of nonfarm income on consumption inequality. On the other hand, Foster-Greer-Thorbecke (FGT) and the Alkire Foster method are used to measure monetary and multidimensional poverty respectively. Inverseprobabilityweighted regression adjustment, which also controls for other correlates of outcome variables, provides the average treatment effect on the treated with alternative specifications and propensity score matching methods used to check robustness. Using data from Ethiopia Socioeconomic Survey (ESS) 2018/19, all income inequality method employed estimates showed that there are consumption inequality differences between nonfarm participants and nonparticipants in rural Ethiopia. Gini coefficient, Lorenz curve, Atkinson and General Entropy estimates revealed that nonfarm nonparticipants are in higher consumption inequality than nonfarm participants showed that nonfarm income decreases consumption inequality. Also, it revealed that across the region, consumption inequality is highest in SNNPR as well as males are relatively in higher consumption inequality than females. The monetary poverty measure, FGT shows that nonfarm nonparticipants are in higher monetary poverty than nonfarm participants revealing that nonfarm income decreases monetary poverty among rural households. FGT estimates also revealed that SNNPR and Tigray region are in high monetary poverty relatively. The multidimensional poverty method, Alkire Foster’s (AF) estimate showed that nonfarm nonparticipants are in higher multidimensional poverty than participants. The result of IPWRA showed that nonfarm income decreases monetary and multidimensional poverty by 7.8% and 1.6% respectively; while nonfarm income share decreases the intensity of monetary and multidimensional poverty by 8.2% and 1.8% respectively. Also, PSM methods (kernel and radius matching) estimates showed that nonfarm income has a significant reducing effect on monetary and multidimensional poverty. Overall, nonfarm occupation decreases poverty and inequality in rural Ethiopia. Therefore, to enhance the benefit of nonfarm income in reducing poverty and inequality the government and other stakeholders should give priority to strengthening the provision of credit access and encourage rural households to participate in nonfarmeconomic activity.