A study was conducted to assess the role of tourism investment incentive for the tourismrndevelopment in Ethiopia: The case of Addis Ababa, using selected agencies from Addis AbabarnCity Administration. The study employed both qualitative and quantitative methods and usedrnquestionnaires, interview and document review for data collection. A total of 236 stars ratedrnhotels and tour operators and travel agents have participated through questionnaires and 5 keyrninformant interviews from Addis Ababa. Ethiopia introduced tourism investment incentivernsystem in 2002, with the proclamation no.280/2002 in which exemption from customs importrnduties (tax incentive) granted. The present study findings indicated that there is strongrnrelationship between tourism investment incentive and tourism development (at a correlation coefficient of r=0.6, p=0.0). The study participants echoed the increase in number of employee inrnthe sector, flow tourists and increase income earnings due to increasing of tourist service both inrnquantity and quality as a result of the incentives. About 78.4% of the respondents havernresponded by saying that the incentive has served as driving factor for investment in the tourismrnsector. The limited kind and amount of incentive offered and the bureaucratic hurdle to obtainrnthe incentives were mentioned as major challenges. To promote sustainable tourism developmentrnand associate sectors, diversifying incentive types, employing the incentive for small tourismrnfirms, take the experience of other competing countries like South Africa, Egypt, Kenya etc andrnthe government should be considered for the way forward.