Evidences show that ecotourism has fallen in many places short of itsrnespoused benefits. It induced at destinations little or no livelihood gains,rnimposed environment damages than helped it conservation, andrnexacerbated income variability than realized the objective of assisting thernimpoverished and disadvantaged sections of local communities. Some evenrnlabel ecotourism as mass tourism under new disguise. This study sought tornexamine the positive as well as negative effects ecotourism has both onrncommunity and environment at around Wonchi Crater Lake located inrnWonchi wereda, in South West Shoo Zone of Oromia Region, wherernecotourism has been taken as instrumental of creating altemative livelihoodrnbasis for local community and help oreserve the pristine environment which isrnunder increasing population pressure. Given the exploratory nature of thernstudy qualitative design with basic quantitative analysis was applied.rnStructured interview, Focus Group Discussion, Key informant interviews, andrnobservation were the main instruments of inquiry employed in the study. Thernstudy analysis was conducted using primary data obtained from 122 samplernhouseholds selected through systematic random sampling from Haro Wonchirnkebele. Descriptive statistics and statistical analysis (Measures of centralrnTendency, Correlation, Regression and Chi-Square) were used to describernand test statistical significance of variables that influence sample households'rndirect benefit from ecotourism. The research result has shown ecotourismrnthough positively affecting the lives of 20% of local community in terms ofrnincome and livelihood diversification the intended effects are too small tornecotourism serve as an alternative occupation. Direct benefits obtained as arnresult of participation in ecotourism related activites are not fairly distributedrnamong residents. Environmentally ecotourism proved to have contributedrnnothing as of yet. No mechanism of soil or forest conservation is introduced,rnsettlement is expanding in the previously preserved areas, the existing forestrncover is under destruction for new farmland and commercial and domesticrnconsumption of fire woods, and lake water is retreating as result of siltationrnfrom steep slope farming. Underpinning this all is the absence of strong formalrninstitution that ensures both justifiable benefits distribution and the protectionrnof natural resources. The implication of this to policy makers is thatrnecotourism should be founded on responsible strong institution which willrnrefrain from pursuing the interest of few community members to be viablernbusiness. Moreover, it implicates that there should be mechanism by which arnclose supervision over such sites by government bodies is conducted. Therncase considered here has evidenced well that if not regulated commonrnresources could be exploited beyond limit by few elites at the expense of thernimpoverished majority.