Ethiopia is one of the most severely affected country in sub-Saharan African countries,rnparticularly by deforestation, which resulted in soil erosion, loss of biodiversity and degradationrnof agricultural land. The full implication of loss of forest resources as well as the root causesrnshould recognized in order to conserve and manage the remaining vegetation cover of therncountry. The main objective of this study is to assess the impacts of deforestation on ruralrnlivelihoods in kuyu district. The data for the study were collected using survey questionnairernincluding informal interviews, observation and focus group discussions . Four kebeles werernselected purposely where the vegetation cover is found and forest products are supplied. Ninetyrnhouseholds were considered for analysis of data the data. Households' size from each kebelesrnwas selected through systematic random sampling based on their proportion household number.rnThe results of investigation showed that, vegetation of the study area is highly degraded. Thernarea, once two decades years ago were under vegetation are changed into other land uses suchrnasfarming land and range land. The section of the vegetation close to town area has high degreernof deforestation. Some scattered vegetation was observed along river valleys, mugger gorge andrnon other inaccessible area. Rising demand for forest product, population growth, low perceptionrnof inhabitants towards environmental roles of forest, lack of alternative economic activities andrnland holding conditions of the inhabitants are the major causes of forest destruction. Moreover,rnfailure to relate forestry policy to overall development, lack of commitment at individual levelrnand organizational and lack of rural participation in forest conservation are some of prevailingrnconstraints of forest resources. Environmental impacts of deforestation, which influence ruralrnlivelihoods, were observed in the study area. Soil erosion, loss of biodiversity (flora and fauna) ,rnand rainfall and water variability are among the major one. Therefore, it is suggested thatrnamong other things, increasing the real income of the peasants, diversifying the rural economy,rnsubsidizing basic commercial farm inputs, providing affordable to fuel wood, incorporation ofrnlocal knowledge, resolving conflicts between users right and management responsibility throughrnintroducing benefit sharing system and awaking the peasants continuously on issues related tornforest resource management and family planning must receive policy attention to reduce forestrndestruction.