This study deals with Ethnicity and challenges of ethnic identification in Ethiopia, with particular emphasis to the Agaw Khimra people. Aimed at exploring the challenges of ethnic identification in Agaw Khimra, the factors that had caused for and contributed to identification problems of Khimra are discussed intensely. To this end, a mixed approach with sequential exploratory design that stresses on the qualitative part substantiating with quantitative evidence was employed. The deconstruction of the Khimra identity due to socio-economic and political factors and the reverse reconstruction process instigated mainly by political factors was focused concomitant with the theoretical and empirical evidences used to substantiate the findings. The finding reveals that, those socio-economic and political factors contributed to challenges of Khimra identification are not totally tackled and are still apparent. Therefore, unless the contributing factors are lessened or alleviated, continuance of such challenges will adversely affect the identification problem of not only existing generation but also the next generations. The markers of ethnic identity such as culture, language and so forth are declining and the maintenance of the ethnic boundary is made vulnerable to dwindle, opening room for identity change. Key Words: Ethnicity, Ethnic identity, Ethnic identification, Deconstruction of identity, Reconstruction of identity, Ethnic boundary