Agriculture is the economic bedrock of most-low income countries like Ethiopia. Its growthrnis critical as over 60% of the people (more than 96% ill the study area) who depend onrnagriculture for their livelihoods and live on less thall one dollar a day in rural areas. Asrnevidenced in the highlands of Ethiopia, the trellds of economic activities are threateningrnbiodiversity and posing significallt risks to livelihoods. This notion of risk as linked tornlivelihood diversification ill the highlands of Mt. Choke is the celltre of the study. The studyrnutilized both qualitative and quantitative methods of data collection and analysis. Torngather data, 100 households were randomly selected from three kebeles of Sillan District inrnEast Gojam. It was assumed that not only environmental risks such as land degradation,rnerosion and diseases affect the killd as well as the degree of livelihood activities but alsornthe types of activities the HHs carry out result in risks instead of building their assetrnportfolio. [11 the process, data reduction for independent variables was done by factorrnanalysis (principal component extraction method). The analysis shows that the socioeconomicrnconditions of the HHs determine the individual as well as community levelrnexposure to risks and the degree of HHs' engagement in a number of livelihood optiolls.rnThe results demonstrate that asset endowments, locational settings and the chosenrnlivelihood strategies influence one another and determine the exposure and occurrence ofrnrisks. In testing, chi-square shows that there is not significant association betweenrnfarm/non-jarm activities and various socio-economic characteristics among HHs who facernsimilar hazards ill the highlands. The analysis also forwards that environmental risks arernthe most felt and observed risks that impact the livelihood activities alld the wellbeing ofrnthe HHs as compared to others. When more of social and economic risks are persistenl,rndiversification becomes inexistent and seeking external help will be in place. [II this way,rnthe effect of one 011 the other (risk 011 livelihood diversificmion and livelihoodrndiversification on risk) is the fUllction of the complex interwoven highland livelihoodrnsystem that depends 011 the depleted natural resources which are the only means in thernconstrained 1I0n-jarm activities due to poor natural endowments alld poor basic servicernprovision. The degree differs based on the type of risks (covariate or idiosyncratic) andrnactivities that persist among different groups of society. What is more, it was found out thatrnthe chronic the risks and the poorer the HHs, the less is the livelihood diversification. Thernimpetus of the findings is that a sound understanding of the high/and peasants' riskrnperceptions of the highland community in relation to livelihood diversification in responsernto various types of risks is critical for developing sustainable livelihood practices andrnprogrammes. They also forward the importance of tackling, in all integrated andrnsustainable way, the multifaceted problems that the peasants face in a fragile ecosystem onrnwhich the poor smallholders rely based 011 the local level reality.rnKeywords: Risk, risk perception, livelihood diversification, sustainable li velihoodrnsmallholder peasants