Wetlands are important environmental resources for rural livelihoods in Ethiopia. The study investigated spatiotemporal change of wetlands, drivers and effects in North Central Ethiopian Highlands. Landsat satellite imageries of 1984, 1993, 2000, and 2013 were used to analyse wetland changes over the last three decades. Practical observations, interviews and discussions with local communities and officers were also conducted to address the main objective. Furthermore, secondary data on crop yields were collected to supplement the primary data. The study shows that wetlands have been converted into built‐up areas and farmlands. Wetlands in the study area experienced annual loss across the entire study period. Consequently, the area size of wetlands decreased from 7.4 per cent in 1984 to 2.6 per cent in 2013. About 66 per cent of the total wetlands was lost within 30 years mainly due to farmland encroachment and urban expansions. The highest rate of wetland change was recorded between 2000 and 2013. Such wetland changes increased conflicts among land users. However, the converted wetlands increased short‐term benefits due to wetland recession agriculture. To conclude, wetland resources are under enormous threats, and challenge the sustainability of livelihoods. Thus, integrated and adaptive wetland restoration policies could improve the degraded wetlands.