Rapid urbanization has led to the proliferation of slum settlements in developing countries. This research main objective is to identify and assess the existing situation of slum settlements in Bahir Dar city, and to understand the environmental challenges they pose. The research used mixed research approach and combined multi-temporal Google Earth imagery with ground site observations to monitor slum growth, to map building footprints and to analyze slum settlement patterns. Primary data were drawn from the Bahir Dar Structural Plan (BDSP) household questionnaire administered to 1,000 respondents, complemented by site observations, key informant interviews, and secondary sources. The UN-Habitat slum indicators are used to identify and characterize slums in Bahir Dar. The findings reveal that Bahir Dar's slum settlements fail to meet the minimum standards for livable housing. An important characteristic is insecure tenure, with many settlements being informal. Most of the housings have low structural quality and durability, because of the use of temporary materials like wood and mud for walls which account for 91% of the slum settlements. These materials are structurally weak, vulnerable to decay, moisture, pests, and fire. Additionally, the settlements suffer from inadequate infrastructure and basic municipal services. While access to private toilets exists for 70.3% of the slum settlements, from these toilets 69.5% are pit latrines which pose risks for groundwater contamination. Liquid waste management is also a major challenge, with 55.9% throwing away liquid waste, leading to pollution. Solid waste collection is also inefficient, with 77% of houses that don‟t get municipal service in the city are located in slum settlements resulting in rampant disposal in drainage lines, roads, and water bodies. The GIS based spatial analysis shows that slum settlements are unplanned characterized by irregular layouts, high built-up densities (43% to 74%), limited open spaces, and poor road networks. These physical characteristics have contributed to different environmental challenges and also decreased environmental quality of the settlements. The study concludes that Bahir Dar's slum settlements are unsafe to both inhabitants and the environment. Recommendations include short-term slum upgrading programs, and long-term urban renewal for deteriorated, unplanned areas. The use of GIS in urban planning is suggested as vital for data driven slum interventions, and comprehensive policy and governance reforms are suggested to address the root causes of slum formation