ABSTRACT This study assesses the multidimensional livelihood vulnerability of smallholder farmers to climate change-induced shocks in Dinki watershed, northcentral highlands of Ethiopia. The data were collected through a cross-sectional survey conducted on 288 households, six focus group discussions, and 15 key informant interviews, complemented with 30 years of rainfall and temperature data obtained from the National Metrological Agency. The Livelihood Vulnerability Index (LVI) framed within the Intergovernmental Panel on Climate Change and vulnerability (LVI-IPCC) approach was used to measure households’ livelihood vulnerability on the agro-ecology unit of analysis. In each agro-ecology, the LVI and LVI-IPCC were calculated as well as one-way analysis of variance was used to test differences between agro-ecological zones. The findings indicate that the vulnerability dimensions and major components varied between agro-ecological zones (p < 0.001). The result also reveals that increased sensitivity to water and health facilities, recurrent exposure to climate change-induced shocks, poor technology utilization, and limited livelihood diversification practices are principal factors contributing to mounted sensitivity, exposure, and overall livelihood vulnerability of the lowland agro-ecology. The finding suggests that designing resilience-building adaptation strategies based on the agro-ecology unit of analysis is sound to reduce the vulnerability of smallholder farmers to climate change-induced shocks.