Background Livelihood diversification involves households earning through various economic activities, such as non-farm businesses, entrepreneurship, and off-farm jobs, improving sustainability, resilience, risk sharing, employment opportunities, and reducing poverty and food insecurity. However, little research has been done on the status, factors and relation of livelihood diversification and food security. This study explores the relationship between food security and livelihood diversification in the Chencha district of southern Ethiopia, focusing on determinants and their connection with household food security. Methods Quantitative and qualitative data were collected from 303 randomly selected households using surveys, key informant interviews, focus group discussions, and observations. Data were analyzed by using descriptive statistics, Herfindahl-Hirschman Index, Ordered probit regression and Pearson’s correlation coefficient. Results The result revealed that subsistence farming (52.1%) and weaving (38.6%) activities were reported as the primary and secondary main income sources of households. A majority of households (90.7%) diversified their livelihood. Based on income share, non-farm, on-farm, and off-farm income sources contributed, 72.96%, 25.3%, and 1.74% of total household income, respectively. Formal employment, weaving, barber/hairdresser, cattle production and sale, cereal production, and vegetable production (Potato) were highly paying livelihood activities in order. Households who combined on-farm, off-farm, and non-farm have gained far larger mean income followed by on-farm and non-farm strategies. Ordered Probit model results showed that landholding size, livestock holding size, and access to farmer training center (FTC) have positively affected the extent of livelihood diversification. Positive association was found between livelihood diversification and the food security status of households. Conclusion thus, the majority of weaving-based livelihood groups diversify their livelihood activities to on-farm, off-farm, and non-farm activities. Hence, supporting the weaving activity and motivating females’ participation, increasing other livelihood options, and modernizing the system with appropriate training, education, and market linkage seems inevitable.