This study was conducted in Banja district, North western Ethiopia to estimate carbon stock potential of Dabkuli Forest and also to analyze its impact on climate change mitigation. Primary data were collected from the study area. For this purpose the forest was stratified into four zones based on the vegetation canopy: dense forest, sparse forest, shrub land and farm land. The study area was then classified in to 34 grids with a cell size of 400 m by 400 m. A total of 34 sample plots with maximum cell size of 50 m by 50 m were taken at a distance of 400 m between plots. Global Positioning System was used to identify each sampling point. After this, nested plot with size of 50 m*50 m and subplots of 20 m*20 m, 10 m*10 m, 5 m*5 m, 2 m*2 m and 1 m*1 m was designed for the measurement of woody species of different diameter classes, under growth and litter. Soil samples were collected from four corners of the 10 m*10 m subplots. Allometric equation was used for determination of above ground biomass (AGB) carbon. Below ground biomass (BGB) carbon was taken as 24% of AGB carbon. In the laboratory losses on ignition and Walkley Black method were used to estimate biomass and soil organic carbon, respectively. The data were analyzed using SPSS version 20. Results revealed that the total carbon stock of the forest was 505.2 ton/ha whereas AGC, BGC, carbon in dead wood, carbon in litter and carbon in organic soil were 281.9, 67.7, 1.6, 4.7 and 149.3 ton/ha, respectively. The highest above ground and soil carbon stock was found in dense forest zone whereas the least stock was found in farm land. This implies that forests store high amount of carbon, which can play an important role in climate change mitigation. The carbon pools’ carbon stock variation with altitude, slope and aspect gradients were not significant at (p>0.05). To enhance/maintain the carbon stock of Dabkuli Forest, it should be integrated with Clean Development Mechanism (CDM), and Reducing Emissions from Deforestation and Forest Degradation (REDD+) carbon trading system.