Selection of appropriate plant species for rehabilitation of degraded lands while fulfilling socio‐economic interests of local communities is one of the decision‐making challenges. This research was undertaken to select multipurpose trees, shrubs and grasses to stabilize degraded lands in the Gilgel Gibe catchment of Southwest Ethiopia, situated in the sub‐humid tropics. Two multi‐criteria decision analysis methods, analytical hierarchy process and simple multi‐attribute rating technique, integrated in the excel‐based multi‐criteria tree selection tool, were used. Focus group discussions were held with experts and local communities to prioritize 40 plant species from a preselected regional pool of 129 species, using six criteria groups containing 47 individual criteria. Root characteristics of the top 9 ranked plants were studied for triangulating the multi‐criteria decision analysis results. Both local communities and experts gave priority to indigenous trees over shrubs and grasses as the best five species for multipurpose use, whereas the top 5 species prioritized for riverbank stabilization contained both trees and grasses. In contrast, communities preferred indigenous trees, and experts selected grasses as the best five species for gully stabilization. The root system characterization revealed that the five top‐ranked multipurpose species also have the required root characteristics for effectively reinforcing unstable slopes. However, communities prefer to plant Eucalyptus and Grevillea trees because of their short‐term economic benefits although they understood the multipurpose value of indigenous plants. The trade‐off between direct economic benefit and multipurpose benefits could be solved by awareness creation, incentives to communities and policy re‐enforcement. Copyright © 2017 John Wiley & Sons, Ltd.