Background: Assessing the magnitude of smallholder farmers’ livelihood vulnerability to drought is an initial step in identifying the causal factors and proposing interventions that mitigate the impacts of drought. This study aimed to assess smallholders’ livelihood vulnerability to the drought in the upper Awash sub-basin, Ethiopia. Household (HH) and climate data were used for indicators related to sensitivity, exposure, and adaptive capacity that define vulnerability to drought. The vulnerability of farmers’ livelihood to drought was compared among the studies agroecological zone (AEZ) and farm typologies. Results: The result illustrated a diverse magnitude of vulnerability index (VI) ranging from −1.956 to −4.253 for AEZ. The highest magnitude of VI was estimated for livelihood in the lowland AEZ, while the lowest magnitude of VI was estimated in midland AEZ. This could be accounted for by the fact that lowland farmers shown the highest exposure (0.432) and sensitivity (0.420) and the lowest adaptive capacity (0.288). A closer look at farmers’ livelihood typology, in each of the AEZ, showed substantial diversity of farmers’ livelihood vulnerability to drought, implying potential aggregations at AEZ. Accordingly, the vulnerability index for livestock and on-farm-income-based livelihood and marginal and off-farm-income-based livelihood typologies were higher than the intensive-irrigation-farming-based smallholders’ livelihood typology. Conclusions: Based on the result, we concluded that procedures for smallholders’ livelihood resilience-building efforts should better target AEZ to prioritize the focus region and farmers’ livelihood typology to tailor technologies to farms. Although the result emphasizes the importance of irrigation-based livelihood strategy, the overall enhancement of farmers adaptive capacity needs to focus on action areas such as reducing the sensitivity and exposure of the households, improving farmers usage of technologies, diversify farmers’ livelihood options, and, hence, long-term wealth accumulation to strengthen farmers’ adaptive capacity toward drought impacts.

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