Small ruminants are an important component of the Ethiopian mixed-farming systems. A key feature of small ruminants in these systems is that they fulfil multiple roles, ranging from socio-cultural purposes to providing meat, milk and manure. Agro-climatic and socio-economic factors trigger off variations in small ruminant production systems; underestimating this diversity in sheep and goats management may hamper the identification of constraints and opportunities for sustainable development of the systems. Likewise, attempts to improve performance under the prevailing conditions must take into consideration their specific purpose in the production system and their performance potential under varying management levels. The assessment of the current productive and economic performance of small ruminants also provides baseline data against which the success of future interventions can be measured. The purpose of this study was to evaluate the productivity and the household income contribution of small-ruminant enterprises of smallholder farmers in two mixed-farming systems of southern Ethiopia (viz. Adilo and Kofele) and to identify possible options for future improvements. Adilo represents the most densely populated areas in Ethiopia while Kofele represents an area of the southern highlands populated at medium level. Kofele is an area with a relatively cool climate, food sufficiency and fairly high agricultural potential in terms of soil fertility and land availability and the farmers in the area keep more livestock than their counterparts in Adilo. Adilo, on the other hand, is an area characterized by land scarcity and food insufficiency. Both areas are prominent suppliers of small ruminants to the neighbouring big cities and Addis Ababa. The study was carried out following a step-wise approach. Understanding the existing situation of small ruminant production was dealt with a diagnostic survey (399 households) and group discussions in respective sites between April and July 2004. Detailed information on growth, reproductive and economic parameters was gathered through a one year long flock and household monitoring (155 households) between September 2005 and August 2006. Semi-structured surveys and feedback workshops were also conducted with the participating households to elicit information on income-expense details and the adoption likelihood of small ruminant technologies in the study area. The statistical data analyses were performed applying descriptive statistics, general linear models, and logistic regression using Statistical Analysis System (SAS) software. Results of the diagnostic survey revealed that small ruminants fulfil several roles in the study area. However, the principal purpose of keeping sheep and goats was to generate cash income. Sheep milk consumption was widespread around Kofele unlike most agricultural systems in the country. Nearly all respondents in Adilo reported fattening their sheep before sale, while such a practice was uncommon in Kofele. Informal insurance schemes were evolving among the sheep keepers in Adilo. The common problem identified from both individual interviews and group discussions was feed shortage. Small ruminant disease (e.g. fasciolosis) was also the major constraint in Kofele, where marshy areas are increasingly assigned for grazing in the rainy season as more suitable lands are gradually allocated to cropping activities The average litter size at birth of sheep covered in this study was 1.3, the rate of single and twin births being 74% and 25%, respectively. Significantly higher litter size was obtained in the Adilo small ruminant system that implies better reproductive rate thereby higher meat output from the area. There is evidence, from the reproductive and growth performance that considerable stress occurs in small ruminants during the dry season due to inadequate nutrition. The lambs in Kofele exhibited significantly higher birth and weaning weights while the average pre-weaning daily gains were about 100g in both sites. High young mortalities of about 20% in lambs and kids can be considered as a majorconstraint. The flock structure of small ruminants in the present study showed that male offtake at a young age (around one-year) was high. The overall offtake rate, which was calculated for the one-year study period as sales plus slaughters plus animals gifted out permanently as a proportion of total flock size at the start of the study, was more than 90% due mainly to sales; the value obtained is among the highest reported offtake rates in sub-Saharan Africa. The flock structure and the offtake suggest that the management objective of sheep owners’ is mainly meat production for the market. The sale of small ruminants contributed to 39% and 23% of total farm cash income among small ruminant keepers in Adilo and Kofele, respectively. Though the two research sites are practicing rainfed mixed-farming, are known for their small ruminant markets and are only a hundred kilometres apart, the existing practices that may be an entry point for further intervention and strengthening are different. Farmers in each site initiated new practices like fattening and managing a household ‘veterinary kit’. In Adilo, logistic regression analysis revealed that the utilization of commercial concentrate decreased with increasing age and farm size only up to a point. The likelihood of adoption increased with livestock holding up to reaching a maximum and then declines as holding increases further. Female farmers, literate household heads, and households with high family size were more likely to adopt the utilization of commercial concentrates. On the other hand, farm size and livestock holding significantly influenced the probability of adopting the practice of treating small ruminants via the household veterinary kits in Kofele area. Treating small ruminants in the household increased with farm size only up to the point at which it reaches a maximum. Those farmers who own a high number of livestock were significantly inclined to undertake the mentioned practice in the household. The growing demand for meat from small ruminants, the improving transportation infrastructure and the experience of farmers in small ruminant keeping are providing opportunities to enhance the contribution of the sector to smallholder farmers’ economy. The performance of the animals can be improved by reinforcing community animal health services and designing alternative feed resources like fodder trees in order to supplement breeding females and young stock at critical seasons of the year. With regard to feeding, attention should also be paid to the shortest feeding regimen before the holidays in which most sales are occurring particularly through strategic feeding and fattening. The current study has analysed two typical mixed-farming systems in southern Ethiopia, employing methods of questionnaires and a participatory approach directed towards capturing farm households and family decisions. Yet, the comparative evaluation of small ruminant systems remained the major focus of the work. The merging of these two approaches was performed in a systematic way, showing its limitations in only partial consideration of non-livestock activities. There also still remains the need to determine the performance of small ruminants under a purposefully stratified range of management systems and under-long term variations of environmental factors so that the out-scaling of results may have a broader inductive basis.