Land degradation in the Ethiopian highlands is considered to be one of the major problems threatening agricultural development and food security in the country. However, knowledge about the forces driving the long-term dynamics in land resources use is limited. This research integrates biophysical information with socio-economic processes and policy changes to examine the dynamics of land resource use and farmers¿ livelihoods in the Beressa watershed for over 40 years during the second half of the 20th century. It was found that there have been substantial dynamics in land resource use in the area. The natural vegetation cover has been extensively cleared, although most of the cleared areas have since been replaced with plantations. Grazing land has expanded remarkably at the expense of cropland and bare land. However, the expansion of cropland was minimal over the 43-year period despite a quadrupling of the population density. Yields have not increased to compensate for the reduction in per capita cropland, and the soil quality appears to be not that good. Though the farmers perceived it otherwise, the long-term rainfall pattern has improved. In response to soil degradation, water shortage, socio-economic and policy changes, farmers have tended to gradually change from annual cropping to tree planting and livestock production to cope with the problems of soil degradation, water scarcity and smaller farms. Income diversification through the sale of wood and cattle dung is becoming a major livelihood strategy. Apparently, however, little attention has been paid to investments in soil and water conservation (SWC) and local soil fertility amendments. In particular, increased erosion and related high nutrient losses in sediments, as well as the removal of potentially available soil nutrients through the sale of manure threatens to damage agricultural sustainability in the area.