Crop-livestock production is the major farming system in the highlands of Ethiopia. This study aimed to describe crop-livestock diversification pattern, examine determinants of diversification patterns, and evaluate effects of diversification on household income. Principal component analysis (PCA), seemingly unrelated regression (SUR) and ordinary least square (OLS) regression models were employed. Five major crop-livestock diversification patterns: sheep and goat, staple crops, chicken, vegetables, and animal feed-based farming were identified. The SUR model revealed that sex, education, income, extension contact, land size, market and road distance, irrigated land, and household size were significant factors that influence crop-livestock diversification patterns. It is also found that sheep and goat, vegetable, and chicken-based farming were significant production patterns that had positive effects on household income. We suggest that adoptive and adaptive agricultural practices such as small-scale irrigation, chicken rearing and sheep-based production patterns are the most potential farming systems in the highlands of Ethiopia.