This study assessed the impact of development induced displacement on the livelihood of small holder farmers: the case of Dejjen woreda rural kebeles. The study employed mixed methods approach with case control design. Quantitative data were gathered through structured questionnaire and qualitative data were collected via interview and focus group discussions. A total of 162 households participated in the study. Census survey was employed to get the sample population since the whole population is taken as a sample. The study employed a modified sustainable livelihood conceptual framework by incorporating basic elements of the frame work such as livelihood resources, livelihood strategies and perceived livelihood outcome. The finding revealed that compared to before displacement, households have lower size of land holding after they displaced (1.18 ha vs1.68 ha). The finding disclosed that, their current average livestock holding by displaced households is smaller than before they displaced (2.706 vs. 1.804 and 1.656 vs. 0.936 oxen and cows respectively). The participation of the households in the existing social-cultural institution is become weaker after they lose their farm land. Despite losing farm land, the livelihood strategy is still depends on agriculture. The average annual income of the household decrease after they lost their farm land (30051.46 vs. 23668.79 respectively). Greater proportion of households (76.2 %) perceived that their annual income is decreases within the five years preceding the survey. Bearing in mind average household income, households 34.6% of households experienced food shortage in the last twelve months preceding the survey. Large proportion of households (55.1%) couldn’t able to meet the basic needs of the household. The fining also revealed that the amount of money paid as compensation for the displaced households is not fair/ enough as compared with what they lose. Therefore the government should provide fair amount compensation for displaced households