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This study was conducted to identify the impacts of drought on rural livelihoods with special emphasis on Shala woreda of West Arsi Zone of Oromia Regional State of Ethiopia. A mixed-method approach was applied by using probability and non-probability sampling techniques. Out of 781 households, a total of 126 rural households were contacted. Data were collected from both primary and secondary sources. Both descriptive and inferential statistics were employed. To compute the results, SPSS Version 20 and STATA version 14 were used. The finding of the descriptive result shows that drought has serious impacts on the economy, the environment and water resources, society, education, and health and induces migration. Results also show a marked increase in drought frequency and intensity, decreasing rainfall totals accompanied by increasing temperatures, and increasing water stress during the drought period. Due to the recurrent drought impacts, the woreda loses crop production each year, the source of income for the local community has declined because of drought, and the community was not able to mitigate the circumstances.