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Rural households in Ethiopia are characterized by subsistence agriculture, while empirical evidence reveals that rural livelihoods are limited. The aim of this study was to assess the rural livelihoods diversification with evidence of households surrounding Lake Tana. Data was collected using a survey from 413 households. The results of the study revealed that the mean overall asset score of the households was 0.313. Crop production, livestock rearing and employment were the major livelihood strategies. The households practiced a mean of three livelihood strategies, and the evenness score of the households was 0.18 referring to the dominance of small livelihood strategies. The mean annual income of the households was 26,696 ETB which was found to have a strong positive correlation with the asset possession of the households (r = 0.56). In addition, the Simpson diversification index result showed that 46.3%, 43.8% and 9.9% of households were low, medium and high-income diversifiers, respectively. Diversification groups have shown a significant difference in asset holdings but not in the income of the households. Moreover, significant variations were observed between Tana Zuria Rice and Tana Zuria livelihood zone households in asset, number of strategies, income and diversification status. The study concludes that the asset ownership of the households is limited. Development of rural livelihood assets is recommended to improve rural livelihoods and, as a result, household income. [ABSTRACT FROM AUTHOR]