Small towns of Oromia Special Zone Surrounding Addis Ababa are expanding tremendously inrnrecent years. The main factors for expansion of these towns are their high potentia ls in attractingrninvestments mainly due to their high proximi ty to the national market and accessibility to variousrntypes of infrastructures. An expansion of these towns has been made in expense of conversion ofrnagricultural and green lands.rnThis study was under taken at peri-urban area of Sebata town to analyze a rapid expansion of therntown and its implication on farming communities. Hence, a sample of 60 households who hasrnpreviously di splaced from their land due to the town expansion was taken. In addition, secondaryrndata from various sources were complimented in order to understand the magnitude of the town'srnexpansion. Primarily data collected from sampled households were processed and analyzed by usingrnthe Statistical Package for Social Scientists (SPSS).rnThe result from the findings showed that an expansion of the town during the last few years madernsignificant impacts on li velihood of farming community on peri-urban area: shortage of agriculturalrnland, land insecurity, and losses of assets. For instance, 50 percent of sample households possess andrnoperated on agricultural land size less than I hectare and only 4.5 percent of them hold land sizernabove 3 hectares. This indicates that the average land holding of sample household is the lowest tornsusta in their livelihood from agricu lture. Although, proximity to urban center benefits peri -urbanrnfarmers in terms of accessibility to infrastructures, markets finance and off farm employmentrnopportunities, farmers in peri-urban areas of Sebeta town did not fu lly take opportunities that wererncome up with the town expansion and development. This is mainly due to shortage of land size andrnlack economic options that absorb them. In addition, rehabili tation mechanisms used by the townrnmunicipality mainly an arrangement of cash compensation for evicted people is found inadequate tornreplace the resource base, which is land. As a result, most of the fam il ies exposed to furtherrneconomic, social and cultural impoveri shment.rnTherefore, to ensure sustainable city development, government should make sound planning prior torndisplacement without treating farmers' livelihood living on the edge of the urban area. These includernpursuing appropriate compensation packages and implementing even those ava il able tornrehabi litate the li velihood of evicted households.