Urban areas in Ethiopia have been growing very quickly in recent decades, which have led to ever increasing demand for land in peri-urban areas for housing and other non-agricultural activities. This has had several transformative impacts on the transitional peri-urban areas, including engulfment of local communities and conversion of land use from an agricultural to a built-up. Since its establishment, woldia has experienced a horizontal expansion that results in displacement of rural farming communities in periphery from their farm land. As a result, about 1452 farmers were displaced from periphery since 2009. From these populations the researcher took 116 fully displaced households using systematic random sampling technique. The central aim of this paper is to assess the effect of expansion of woldia town on livelihood of displaced farming community. In order to attain the intended objectives, necessary data were collected using, satellite images, aerial photography, questionnaire, interview, focus group discussion and field survey. The collected data were analyzed quantitatively and qualitatively. Based on data analysis the following findings were generated; due to expansion of the town, built up areas greatly expanded and on the contrary agricultural areas around the town were decreased from year to year. The horizontal expansion consumed 537.18 hectares of agricultural land in between 2009 -2016 and from this residential area took the largest share of total built up areas. The observed urban expansion have been severely affecting the livelihood (asset base) of displaced farmers of the study. In addition, the study revealed that the implemented expansion program is not participatory and have marginalized the farming community. The compensation schemes envisaged for the loss of assets excluded youth and women. The dislocation program implemented is not rehabilitative and negatively affected the livelihood of the dislocated farming community. Furthermore, the study also revealed that women and children are major victims to livelihood crisis. The coping mechanism/strategy adopted by the majority of the dislocated farmers is casual that is directly or indirectly dependent on agriculture, which is being vanished in the area. Dislocation program that may be proposed in the future needs comprehensive planning and implementation to ensure community participation and create alternative livelihood.