ABSTRACT This thesis was conducted in Amhara National Regional State, Lake Tana Biosphere reserve region found in Bahir Dar city Administration with the aim of identifying the main challenges and prospects of ecotourism development in the study area. Three Kebeles having different potential and ecotourism resources were purposively selected. Both qualitative and quantitative methods were employed in collecting and analyzing the data. The total number of the household heads of the selected 3 Kebeles (Oura, Yiganda and Tiss Abay) was 2192 and out of this universal population 146 sample households were selected using a random sampling method. In addition to questionnaire, Key Informant Interview, Focus Group Discussion, observation, and review of secondary sources were used as data collection methods. The collected data was analyzed using SPSS software, descriptive statistics that involve frequency distribution, percentages, bar charts and pie charts. Besides to descriptive statistics inferential statistics is used to analysis the collected data. This work has attempted to reveal the presence of potential ecotourism resources, the main challenges of ecotourism which hinder the development of ecotourism and has recommended the way forward. Hence, the major obstacles of tourism/ecotourism development in the study area were infrastructure, absence of trained manpower, lack of awareness, absence of clear cut developmental approach of ecotourism, market problem of souvenir vendors and absence of local community participation in ecotourism development activities. Local communities were not aware of what is happening on their locality. They might see that there is tourism development in the area, but they were not aware of who the key stakeholders are and how they could become involved. Based on the analysis of the collected data, the ecotourism industry in Lake Tana region is not effectively managed as compared with its high tourism resource potential, and the amount of revenue and employment opportunities created by the industry is insignificant. As a result, Lake Tana is at a higher resource use conflict which makes the lakes existence unsustainable. The concerned bodies need to integrate and work together in order to ensure sustainable ecotourism development in the study area. Key words: Ecotourism, Lake Tana region, biodiversity, community Participation.