Cultivating cordial inter-ethnic relation is an important mechanism of engendering nation-building and development plans of a state. To accomplish this objective, the incumbent government of Ethiopia established ethnic based federalism. However, there is strong debate on the effectiveness of this policy. Thus, the main aim of this study was to assess the influence of ethnic federalism on inter-ethnic relations between the Amhara and Kemant peoples by uncovering their historical economic and social relations. To achieve the main objective, the study employed qualitative case study design via consulting wide ranges of primary and secondary sources. Key informants and FGD participants were selected based on both purposive and snowball sampling. The data obtained from both primary and secondary sources were analyzed through the use of thematic analysis. The finding of the study revealed that the Amhara and Kemant people have had long periods of amicable relations expressed in terms of economic interdependence, inter-ethnic marriage and companionship in religious based social practices. This is not to say that there were no interpersonal conflicts such as land conflict, homicide, abduction and property looting. However, these conflicts were resolved easily through the employments of shimglina. After the initiation of ethnic federalism in Ethiopian political system, identity conflict started to emerge between the two groups. This is because of the fact that ethnic federalism brings new kinds of political question such as ethnic recognition and the right to selfdetermination which in the end creates ethnic suspicion. The major conclusion drawn from the findings of the study reveals that the mere existence of ethnic difference is not a cause for hostile inter-ethnic relations unless manipulated by ethnic entrepreneurs for political and economic motives.