In recent years, Eucalyptus globulus planted along field boundaries has come to dominate the central highland landscape of Ethiopia. Although evidence is scanty, there is a perception that this practice adversely affects crop productivity. An on-farm trial was conducted on Pellic Vertisol at Ginchi to determine the production potential of eucalypt boundaries and their effect on the productivity of adjacent crops of tef (Eragrostis tef) and wheat (Triticum sp.). The experiment comprised three stand ages, four field aspects and six distances from the tree-crop interface, using a split-split plot design with three replicates. Wood production rates ranged between 168 kg ha-1 y-1 (four years old) and 2901 kg ha-1 y-1 (twelve years). Thus eucalypt boundaries planted on a hectare of land would satisfy 50 to 75% of the annual biomass energy requirement of a rural household of five persons. Significant depression of tef and wheat yields occurred over the first 12m from the tree line: the reduction was 20 to 73% for tef and 20 to 51% for wheat, equivalent to yield losses of 4.4 to 26% and 4.5 to 10% per hectare respectively. Nevertheless, in financial terms, the tree component adequately compensated for crop yield reduction and even generated additional income. Therefore, eucalypt boundaries have great potential to satisfy the rising demand for wood, without requiring a major change in land use on the highland Vertisols. The greater availability of wood will reduce the demand for dung and crop residues for fuel, and thus may contribute to improved soil management on croplands while relieving the increasing pressure on indigenous forest and woodlands.