This research was initiated to find out the different factors affecting income diversification and assess patterns of income diversification in Akaki district of Ethiopia. Two stage random sampling with Proportionate Probability Sampling (PPS) was used to collect cross-sectional data from 155 farm households using structured questionnaire. The data were also supported with documents from agricultural and rural development office and farmers cooperatives in the study area. The Tobit model was used to analyze the factors determining the income diversification. From the descriptive statistics, sales of homemade farm implements and drinks, and non-farm employment was found to be the most important sources of off-farm income in the study area. The results from Tobit model indicate that, family size; number of extension visit per year and education level has a positive significant effect over income diversification. On the other hand, age of the household head; land size and average distance from market have negative and significant influence on the household’s decision towards diversification.