City tourism is one of the fastest growing segments of the travel and tourism industry. Thernindicator of the city tourism growth is becoming increasingly apparent in Addis and playing arnsignificant role. This thesis is intended to study the potential, opportunities and challenges inrnAddis Abeba for city tourism development, To achieve the objectives, the researcher employedrnboth quantitative and qualitative research method. A quantitative research approach is in thisrnstudy Data (n=157) are collected from purposely selected tour and travel trade sectors (firms),rnwhich have applied potential, challenges opportunities and prospect in their city tourismrndevelopment by using a survey questionnaire and the collected data is analyzed by SPSS versionrn23; Principle Factor Analyses is employed to validate the items used to measure potential,rnchallenges, opportunities and prospect, followed by a reliability test using Cronbach's Alpharntest, t-test and ANOVA test. Both primary and secondary data were used to examine thernchallenges, prospect, opportunity and potential. To collect the primary data, deep andrncontinuous personal observation on tourist destination and other sources gathered from variousrnliteratures. The analysis of the study revealed that Historical buildings, Cuisine and Museumrnreligious site, landscapes, mount Entoto; and monument and night life are also tourism productrnand resources of city tourism of Addis Abeba. Even though the city of Addis tourism potentialsrnhas diversified values, some of they have not yet been developed and utilized due to variousrnimpeding factors such as lack of awareness about the tourism potentials, Pollution, sanitation,rnlack professional trained man power, lack of city tourism facilties and absence of economicrnmaintenance of city tourism. Therefore, it is recommended that there is need to develop andrnencourage the potentials and collaboration of the city tourism development between Addis Abebarncity government and ministry of culture and tourism offices with different stakeholders such asrntour operator, travel agent, event organizer, entertainment organizer, local people, privaternsector and Addis city government offices as all are responsible to develop and exploit tourismrnpotentials of the study area.