National Policy on Ethiopian Women (NPEW) is the first national policy formulated in 1993 forrnthe protection of women’s economic, social, political and human right in Ethiopia. Inrnimplementing this policy different institutional arrangements are established. Even if thernstructure of the organizational system for the local governments was placed in the policy since itsrnformulation, their actual establishment is very recent than that of the regional and federalrngovernment. They lack experience, coordination, sufficient human and physical resource torndischarge their duties effectively. The objective of this paper is to investigate institutionalrncapacity in implementing the national policy of Ethiopian women in Dilla town. In doing this,rnboth qualitative and quantitative data were used in order to explore and describe the capacity ofrnlocal government in Dilla town.rnThe study found out that despite the commitment of the government to resolve gender disparityrnin all spheres, the government failed to effectively institutionalize the national policy in the localrngovernment in the way that could respond to the women’s need and problem in a localizedrnmanner. As such local governments in the Town have failed to address the problem of womenrnadequately due to a numbers of capacity challenges and problems in their jurisdiction. The localrngovernments in Dilla town suffer from limited institutional capacity such as shortage of humanrnresource, lack of effective leadership, professionals and experts; lack of adequate materialrnresource such as finance, office equipments and building for permanent office; limited policyrnknowledge and understanding, absence of organizational objective, plan, vision, mission andrnvalues especially at grass root level; there is also a limited/absence of coordination and wellrnestablished network both among local governments and between the actor and other sectors; lackrnof gender disaggregated data in the local governments; limited level of community participation;rnlack of institutional experience are among the capacity problems faced by the governments in therntown in discharging their responsibilities. This in turn resulted in poor quality service to therncommunity in general and women in particular. In order to improve the capacity of the actor inrnthe town government must consider and reconsider the local levels in the national policy andrnestablish strong institution at the grass root level to make the service more responsive to therncommunity