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The conceptual root of vulnerability dates back to the 1970s in social sciences. Vulnerability is a multi-dimensional and determinant precondition for disaster occurrence. Gamo lowlands are exposed to multiple vulnerabilities. The objective of the study was to assess community perceptions and understanding of vulnerability in drought-affected rural Gamo lowlands. A community-based cross-sectional survey design and mixed methods approach were implemented in the study. Four staged multistage sampling was employed to identify respondent households. Into four study sites, sample households were allocated proportionally by lottery method. Data were gathered from 285 lowland rural households. The structured survey questionnaire, KII, FGD, and informal interview were used to collect primary data. Data were analyzed both qualitatively and quantitatively. SPSS version 23 was employed for descriptive statistical duties. 68.1% of households were found at low educational status with 46 years of average age. Locally, people perceive and understand vulnerability as exposure to drought hazard, rainfall inconsistency, the prevalence of human and animal diseases, livelihood insecurity, food shortfalls, poor income, lack of access to market, landholding, and livestock ownership which are schematized by vulnerability perception pathways that delineate its extent. The findings also showed that all households are not equally vulnerable as 96.5% of the studied households stated differential idiosyncrasy of vulnerability. Old aged, small-sized, and female-headed households with no supportive force were found to be more vulnerable. For better resilience, enhancing communities’ perceptions and understanding of vulnerability via continuous awareness creation by all the concerned stakeholders is recommended as the majority were lowly educated.