Studying rural state holding land management and its socio-economic and environmental implication has a significance of providing evidence for the concerned body to protect and conserve the resource. This study was therefore carried out in rural state land management with the major objective of assessing the rural state holding land management practice and its environmental implication in Sire woreda. To realize the objectives of the study, socioeconomic and perception data on rural state holding land management and its socio-economic and environmental implication collected from 123 sample households. Primary data was also collected from Key Informants (KI), Focus Group Discussions (FGD) and field observation, Document analysis (annual reports) and other secondary sources of data were included. The analysis of data showed that the state owned huge land with different resource characteristic in studied kebeles. Socioeconomic and perception data analysis revealed weak policy, institutional arrangements and lack of land information system have resulted in poor rural state holding land management. This poor management of state holding land is manifested in illegal encroachment, underutilization and unsustainable land use allocation. Other socio economic factors like poverty, population pressure and cultural practice endangered the problem of illegal encroachment on environmental sensitive resource like forest. On the other hand, illegal encroachment for grazing, collection of fuel wood and unsustainable land use allocation have caused environmental degradation that resulted in numerous environmental problems. Frequent drought and erratic rainfall are among the problems that challenges the agrarian community indirectly. From the analysis of the results on State holding rural land management, it can be concluded that there is a huge state holding rural land with poor resource management and utilization. Likewise, from the socioeconomic and perception data analysis result conclusions can be drawn that lack of an effective institutional structure remains the main driver of poor rural state holding land management. Based on the study it is recommended that policies related to population, agricultural productivity, and environment with the aim of sustainability should be devised to address the environmental, social and economic problem related to state holding land management.