ABSTRACT Ethiopia has huge ecotourism potentials including both natural and cultural attraction. The study area is also one the potential areas of the country having different natural and cultural ecotourism attractions. This study was conducted in Amhara regional, state, South Wollo Zone in and around Lake Hayq to assess the potential and challenges of ecotourism development in the study area. Four Kebeles were purposively selected based on the proximity to the study area, accessibility for ecotourism activities and availability of potentials for ecotourism development. Both qualitative and quantitative research methods were applied. Field observation was used for collecting data in relation to ecotourism potentials in the area. Concerning to ecotourism development challenges in the area 98 household respondents were selected from a total of 5882 households and questionnaire survey was conducted. In addition to direct observations and household questionnaire, Focus Group Discussion, Key Informant Interview and secondary data sources were employed. The qualitative data were analyzed using narrations and quantitative data were analyzed by using frequency, percentage and Chi-square test. The potentials of ecotourism development were found as: scenic landscapes, water body, waterfowl, fishes, cultural and heritage attractions. The study also showed that ecotourism attraction, especially heritages are; parchment books, different designed hand cross, and several ancient man-made materials in Hayq Estifanos communal monastery. The major challenges of ecotourism development in the study area were; lack of local community participation, awareness, promotion and inaccessible infrastructure. Majority of the respondents (72.4%) described that local communities are not participating in decision-making process for ecotourism development. About 81.6% and 80.6% of the respondents also believed that the challenges for ecotourism development resulted from lack of awareness at local community level and lack of promotion the ecotourism products, respectively. Although the area has huge natural, cultural and historical ecotourism attractions, there were also observed different obstacles that hinder ecotourism development in the area. So, in order to minimize the challenges of ecotourism development and maintain its potential; local communities’ participation, ecotourism product promotion and local communities’ awareness towards ecotourism should be well addressed in the area. Keywords: challenges, ecotourism development, Lake Hayq, potentials