This study was intended mainly in examining the determinants of income diversificationrninto off-farm activities among farm households and thereby to have an insight onrncontributions of diversification in Misrak Badawacho Woreda. The study drew a samplernof235 households through a multi-stage stratified sampling technique from four Kebelesrnin the Woreda. Data analysis was done using descriptive statistics, binary logisticrnregression model and multinomial logit model. Opinions of interviewees have alsorntriangulated with data obtained ji-om survey in issues related to roles of diversification.rnResults indicate that about 59.1percent of respondent farm households have participatedrnin off-farm activities. Among these about 76.9 percent of off-farm participants drive theirrnincome ji-om at least self employing nonfarm sources while 23.1 percent of off-farmrnparticipants are allocated their labor to wage work. The binary logit and multinomialrnlogit estimations show that the major significant determinants of participation into offfarmrnactivities as well as choice of an activity among alternatives are farm size, oxenrnholding, proximity of market locations and roads, and number of adults. Otherrn. characteristics such as age, sex, education level of household head, dependency ratio,rnand soil quality of farm land are not significantly influenced the probability of involvingrndecision in and choices of off-farm activities. Farm households who involved in off-farmrnactivities have benefited in gaining a higher average income than not involvedrnhouseholds thereby maintained their daily requirements including food Moreover,rnpoverty headcount index shows that households who participated in off-farm activitiesrnare less incident to poverty than those did not involve. However, the implied constraintsrnto nonfarm diversification include high financial shortage, lack of skills and knowledgerninadequacy of institutional support. Based on the findings, the following pOints ofrnrecommendations are stated: Promoting rural credit schemes, integrating Governmentrnand nongovernmental organizations in providing technical support, organizing peoplesrnin off-farm activities, designing labor intensive employment program and constructingrnrural infrastructure.