In Ethiopia sheep serve as a source of income, meat, milk, skin, manure and employment for smallholder rural farmers. Sheep are the most preferred animals by rural poor communities as they require small investment, have shorter production cycles faster growth rates and greater environmental adaptability as compare to large ruminant. The objective of this senior seminar is reviewing on Production Systems, Selection criteria and Breeding practice of indigenous Sheep Breeds in Ethiopia. Rural households are practicing animal husbandry in diverse production systems and climatic zone which are classified as three major different production systems; highland sheep-barely, mixed crop-livestock and pastoral and agro-pastoral production systems. However, sheep production and productivity in the country is challenged by scarcity of feed, diseases outbreak, poor infrastructure, lack of market information, lack of knowledge, absence of planned breeding programs and policies. The existed sheep type in the country is really the output of human intervention and natural selection. Traits like coat color, tail type, horn and ear size of sheep can also have dynamic effect on the price of sheep marketing. For selecting breeding ram's farmers consider different traits like body conformation, coat color, tail type/size, growth rate, sexual drives, dentation and the quality of being adapted and record of ancestors. Breeding ewes are selected by farmers as a replacement stock based on their Coat color, twining ability, lamb growth, lamb survival, age at first lambing and lambing intervals. In Ethiopia the main objective of sheep production is to provide income, meat, milk, skin, manure and employment for smallholder rural farmers. In Ethiopia both pure-breeding and crossbreeding are the most common sheep breeding practice. Farmers practice both selection and crossbreeding to improve their breeding stocks. Therefore, the economic value each trait should be assessed because it influenced the market value of sheep and the decision of farmers in selecting breeding stocks. The establishment of standard marketing systems and market information calls further investigation.