The research is conducted on the influence of indigenous institutions in the conservation and use of forest Coffearnarabica and its habitat, natural forest. It is conducted in Yayo district of /Iuu Abba Bora zone, Southwest Ethiopia.rnThe general objective of the research is to explore the contribution, challenges and prospects of indigenousrninstitutions in forest coffee and natural forest conservation.rnCoffee is a base for the Ethiopian Economy that contributes over more than 60 percent of its foreign exchangernearnings and 42 percent of taxes from foreign trade (EDE, 1999: 1) as well as for local consumption. A substantialrnportion of coffee grow wild under the natural forest in the South and Southwestern parts of the country on whichrna large number of population depend for their economic subsistence and socia-cultural affairs. However, thernexisting wild coffee is endangered due to natural calamities and various human factors that contributed to thernincreasing deforestation. The interaction between human beings and the natural environment are the causes forrnthe endangered wild coffee and natural forest. This in turn is regulated through various rules and regulation thatrncontrol the activities of institutions of which indigenous institutions constitute a part.rnThe research, hence, employed functionalism, cultural ecology and Ostrom's Institutional Analysis andrnDevelopment (lAO) framework. Malinowski's functionalism is set up on what he regards as the seven basic needsrnof man that include nutrition, reproduction, bodily comforts, safety, relaxation, movement, and growth. Thesernindividual needs are satisfied by derived cultural and social institutions, whose functions are to satisfy them. Itrndemonstrates that the function of institutions in satisfying human needs that contribute in keeping environmentalrnstability. Cultural ecologists, focus on the impact of local populations using different cultural and social institutionsrnon the environment. Indigenous institutions in particular, thus, mediate the interaction between human societyrnand the natural environment. This is because indigenous institutions based on the social, cultural and otherrnpractices of the society in their attempt to serve the $ociety in adapting the environment. Every rules andrnregulations, code of conducts, customary rights and practices, rituals, cultural values, etc. on which indigenousrninstitutions found directly or indirectly influence the datural environment. The lAO framework also enables tornanalyze the role of institutions at different level through substantiating the empirical data with theoretical thoughts.rnIt allows synchronizing the impact of indigenous institutions at operational and collective choice level as well asrntheir interaction with formal institutions in order to contemplate its impact on forest conservation and use.rnThe study reveals that indigenous institutions exist in the study area can be categorized in to four majorrncategories. These include territorial based administrative indigenous institutions, self-help work organizations,rnreligious institutions and Indigenous knowledge. Despite the fact that the indigenous institutions are notrnestablished for specific resource management with clear rules, they have been contributing a lot in thernconservation and use of natural resources including forest coffee and natural forest. Broadly speaking their rolerncan be viewed as operational level activates that perform forest coffee production activities such as clearing thernundergrowth, digging, pruning, planting seedlings, transporting and collecting coffee. They also contiibute inrnincreasing local people 's income that reduces deforestation of forest coffee and natural forest. Administrativernindigenous institutions perform collective choice level activities that determine the activities of operational levelrninstitutions or self-help organizations. They organize and make decisions on these activities of self-help workrnorganizations such as dabo, jiga, lafee and quqube that greatly contributes to the conservation and use of forestrncoffee and natural forest. The role of indigenous institutions in natural resource conservation has been changedrnand declining over the past many years for various reasons of which the domination of formal institution is a majorrnone.rnThe research also confirm that the attitude and perception of the local community towards the conservation,rnproperty rights, indigenous and formal institution interrelations, and resource conflicts are the main challenges forrnresource conservation and use.rnXIIrnThe potentials of Indigenous institutions in natural resource management is evident from their ability to managernnatural resources through indigenous knowledge, adaptability of th eir rules with changing situations andrnmobilization of the community towards natural resource conservation. Hence, systematic combination ofrnindigenous and state forced local institution through policies and programs of natural resource management canrnensure sustainable forest coffee and natural forest conservation and use.