Small ruminants are an integral part of mixed-farming systems throughout southern Ethiopia. Yet, they have received little research attention or institutional support. Characterizing the existing small ruminant production systems and analysing their production constraints are important tools to diagnose the status and trends of the systems, and thus to identify areas for future interventions. A survey was conducted between April and July 2004 in the Adilo and Kofele areas of the southern mixed-farming systems of Ethiopia to explore reasons for keeping small ruminants and to evaluate the existing status of and the prospects for the small ruminant sector. Additional information was obtained during discussions with key informants who had experience of small ruminant keeping. Small ruminants fill 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, and these can be considered as entry points for future interventions. The common problem identified from both individual interviews and group discussions was feed shortage. The identification of alternative feed resources and strategic feeding management might be options for development. Small ruminant disease was the major constraint in Kofele, where marshy areas are increasingly assigned for grazing in the rainy season as suitable land is more and more used for cropping. 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. A thorough monitoring of the productive and economic performance of small ruminants is required to capture the full picture of their contribution thereby directing possible intervention areas to maximize benefits to the farmers.