The purpose of the study was to investigate Teachers’ understanding, implementation and challenges of differentiated instruction at Libo kemkem Woreda secondary schools. The research employed quantitative approach and the design was descriptive survey. The population of the study consisted of all five secondary schools of Libo kemkem Woreda with a total population of 337 teachers and the target population is 4 secondary schools with 293 teachers. The sample for study was made up of 4 comprehensively selected school and 132 teachers selected using the systematic random sampling technique. The instruments for the study were questionnaire which had five and four point likert scales, and observation. The reliability of the questionnaire was determined using the Cronbach’s alpha following a pilot study using 25 respondents from one school that was not part of the main study. An alpha reliability coefficient of 0.807, 0.778, 0.815, and 0.821 were obtained for teachers’ understanding of the essence of DI, understanding of DI strategies, implementation of the essence of DI and implementation of DI strategies respectively. The data were collected and analyzed using SPSS version 20.0. The descriptive statistics and one-sample t-test analysis techniques were employed. The study found that teachers had good understanding on differentiated instruction, but its implementation at schools was very poor. The study revealed that teachers didn’t differentiate the instruction according to pupils’ needs. Lack of adequate training/ knowledge and experience on how to implement DI, large class size, shortage of time, lack of resources, teachers’ commitment & motivation, inappropriate difficulty level of the content, lack of school support and others were identified as challenges