In developing nations, farming is primarily subsistence, rain-dependent economy of the rural households not mechanized, and uninsured, making it subject to high crop losses caused by environmental and human factors. As a result, diversifying smallholder farmers’ livelihood strategies helps them achieve financial stability, combat poverty, provide job opportunities, food security and cope with environmental and socioeconomic shocks. This study was conducted to assess livelihood diversification strategies and identify the factors that affect households’ decisions to diversify their livelihood strategies in Farta Woreda South Gonder Zone of Ethiopia. A multi-stage stratified random sampling technique was used to select 334 rural household heads as a sample in study areas. The study employed primary data collected from sampled rural household heads through interview schedules, focus group discussions, and key informant interviews. In addition, secondary data were sourced from office reports and other published and unpublished materials.the data analysis method includes descriptive statistics and multinomial logit model. The survey results indicate that 29.34% of the respondents choose farm only, 42.81% on-farm plus off-farm, 17.37% on-farm plus non-farm and the remaining 10.48% of the respondents choose farm plus off-farm plus non-farm strategy. Multinomial logit model was employed to identify the factors influencing the rural household heads’ decision to choose livelihood strategies. The model result showed that credit, annual income and education positively impact on livelihood diversification where as age, farm size, distance from market center and agricultural input supply on time negatively on livelihood diversification. This implies that as household heads grow older, they tend to lack the physical strength and financial capital required to engage in on‑farm and off‑farm activities. The difficulty of transporting produce to markets exacerbated by long distances and poor road conditions-discourages participation in both agricultural and non‑farm activities. Greater landholdings encourage specialization in farming, while smaller landholdings push households to diversify into alternative livelihood strategies. Timely access to agricultural inputs was limited or heavily tied to on‑farm activities, may encourage specialization rather than diversification. Therefore, the study recommends promotion of rural households’ livelihood diversification strategies to build more profitable and sustainable livelihood strategies.