The present study employed an econometric framework of land-use shares at the scale of a district to analyse the effects of different socio-economic, bio-physical and climatic factors on land-share allocations to agriculture, forest and grass shrubland in the Southern Nations, Nationalities and People’s Region of Ethiopia. The results of the empirical analysis confirmed the significant role played by access to credit, access to markets, population density and road density in the allocation of land to competing uses. The results have important implications for the sustainability of current agricultural intensification policies and rural development strategies in Ethiopia, such as the sustainable land management (SLMP) initiative. For example, it is important to include densely populated regions in the SLMP target areas, as high population pressure remains a major cause of land conversion to agriculture and hence needs to be addressed. It will be necessary to create income and employment opportunities outside farming to reduce the pressure of population growth on land. Care must be taken in identifying routes for the construction of rural road networks with minimal environmental impact. Credit provision must consider other, more capital-intensive technologies such as the irrigation needed to reduce pressure on the land through improved productivity. In addition to the promotion of higher adoption of modern technologies to levels that allow the realisation of the land-saving effects of intensification and productivity gains, strategies and policies are needed to encourage intensification of agricultural production in non-forested land. Furthermore, forest policies that facilitate the capturing of forest rents are important for the preservation of forests. Programmes and strategies to exploit multiple benefits from the various forest ecosystems’ services, such as clear and secure land and forest property rights, and land use and forest policies that give carbon rights to land users and allow communal administration of forests, are prerequisites to enhance forest benefits as the main incentive for conservation.