Small-holder farmers in Ethiopia are facing several climate related hazards, in particular highly variable rainfall with severe droughts which can have devastating effects on their livelihoods. Projected changes in climate are expected to aggravate the existing challenges. This study examines farmer perceptions on current climate variability and long-term changes, current adaptive strategies, and potential barriers for successful further adaptation in two case study regions—the Central Rift Valley (CRV) and Kobo Valley. The study was based on a household questionnaire, interviews with key stakeholders, and focus group discussions. The result revealed that about 99 % of the respondents at the CRV and 96 % at the Kobo Valley perceived an increase in temperature and 94 % at CRV and 91 % at the Kobo Valley perceived a decrease in rainfall over the last 20–30 years. Inter-annual and intraseasonal rainfall variability also has increased according to the farmers. The observed climate data (1977–2009) also showed an increasing trend in temperature and high inter-annual and intra-seasonal rainfall variability. In contrast to farmers’ perceptions of a decrease in rainfall totals, observed rainfall data showed no statistically significant decline. The interaction among various bio-physical and socio-economic factors, changes in rainfall intensity and reduced water available to crops due to increased hot spells, may have influenced the perception of farmers with respect to rainfall trends. In recent decades, farmers in both the CRV and Kobo have changed farming practices to adapt to perceived climate change and variability, for example, through crop and variety choice, adjustment of cropping calendar, and in situ moisture conservation. These relatively low-cost changes in farm practices were within the limited adaptation capacity of farmers, which may be insufficient to deal with the impacts of future climate change. Anticipated climate change is expected to impose new risks outside the range of current experiences. To enable farmers to adapt to these impacts critical technological, institutional, and market-access constraints need to be removed. Inconsistencies between farmers’ perceptions and observed climate trends (e.g., decrease in annual rainfall) could lead to sub-optimal or counterproductive adaptations, and therefore must be removed by better communication and capacity building, for example through Climate Field Schools. Enabling strategies, which are among others targeted at agricultural inputs, credit supply, market access, and strengthening of local knowledge and information services need to become integral part of government policies to assist farmers to adapt to the impacts of current and future climate change.