Village chickens contribute more than 98% of the total meat and egg productions in Ethiopia. Poultry diseases are considered to be the most important factor responsible for reducing both the number and productivity of chickens and the farmers face huge economic losses throughout the year. The main objective of this study was to assess the economic impact of poultry disease, and its impact on household income, and dietary diversity. The study relied on both primary and secondary data sources of information. The primary data was collected from 152 samples both affected and none affected households. In this study, descriptive statistics, costs and returns analysis, and econometric models were used to analyze the data from households. From the total number of sample households 53.3 percentaffected by poultry disease. Only 38% and 23.46% of households affected farm households had access to government veterinary health centers for the treatment of sick poultry to curb the fatal disease for none affected and affected households respectively. The total, cost was estimated at Ethiopian Birr 122836.5 and 105612.5, respectively, for affected and non-affected farm household, and the total return was estimated at 8606.25 and 47880 Ethiopian Birr, respectively for affected and non-affected farm households. The study found that due to poultry disease outbreak an average economic loss was determined 3433.3 Ethiopian Birr for each household. On average, the country incurred an economic loss of 1.58 Billion Ethiopian Birr (US$ 37.656 million) per annum. The household’s dietary diversity, showing the score for affected 7.03 and non-affected 9.56 meaning that the affected farm households had consumed lessamount than the non-affected farm families. The multiple regression model output shows that age of households, family size, knowledge of poultry disease, training on poultry disease, and access to vaccination significantly affected the income of the household. Thus, control of diseases should be achieved through vaccination and improvement in veterinary and advisory services.