The yield of intercropped peanut (Arachis hypogaea L.) in cereal crops was drastically reduced by 20–55 %, presumably due to high interspecific competition caused by illogical field layout and imbalanced fertilizer application. Field experiments were conducted in the Babile district of Eastern Ethiopia during the main cropping seasons of 2021 and 2022 to assess the possibilities of minimizing the peanut yield penalty and instability while improving sorghum production. The treatments consisted of two monocrops (SM = sole sorghum, GM = sole peanut), three row-configurations (S1G1 = 1-row sorghum with 1-row peanut, S1G2 = 1-row sorghum with 2-row peanut, MBILI = Managing Beneficial Interactions in Legume Intercrops via modifying 2-rows of sorghum with 2-rows of peanut), and four vermicompost levels (0, 1.5, 3, and 4.5 t/ha), which were factorial arranged in a randomized complete block design and replicated three times. Peanut under MBILI with 4.5 t/ha vermicompost boosted peanut seed/pod and dry pod yield by 17.5 % and 20 %, respectively, with a corresponding rise of sorghum grain yield by 72 % and net profit by 48 %. Unlike GM, intercropping peanut with sorghum significantly increases yield with time, which shows the high yield stability and sustainability of intercropping over monocropping. Interestingly, peanut yield in this treatment was statistically on par with pure stand, supporting the concept that MBILI row-configuration is necessary for maintaining the potential yield of the peanut crop. Similarly, the assessment of bio-ecological indices infers the superiority of the MBILI in terms of land use efficiency, yield advantage, and profitability compared to other combinations. This implies that modifying the planting geometry along with balanced nutrient supply could alleviate the detrimental effects of sorghum over peanut by minimizing interspecific competition, thereby giving better yield and economic value for subsistence farmers.