The livelihood of smallholder farmers in Ethiopia is threatened by climate change and variability (CCV). It sternly challenged agricultural activities and rural livelihoods, making a sizeable proportion of the population vulnerable to poverty and food insecurity. Given that agriculture is the source of income and employment for the majority of the population, agricultural adaptation is important to reduce the livelihood effects of CCV. However, not all adaptation strategies are effective. All households may not also equally benefit from the use of adaptation strategies. This study investigates adaptation decision-making and the effectiveness of adaptation strategies in sustaining the livelihoods of farmers. The study used a convergent parallel mixed-methods research approach. It integrated quantitative and qualitative methods of data collection and analyses aimed at a comprehensive understanding of the complexities underlying adaptation to CCV. Analysis of the trends in climate change over 30 years revealed increasing temperature in all agro-ecological settings. Although there was high variability in rainfall distribution, there was no monotonic rainfall trend in the highland and lowland areas. The majority of the farmers accurately perceived the increasing trend in temperature and variability in the time of onset and cessation of rainfall. However, most farmers inaccurately perceived decreasing trend in rainfall which diverges from the results of the trend analysis. About 40% of the farmers had a high perception of the risks of CCV to their livelihoods, 39% had a moderate perception, and 21% a low risk perception. Farmers with more knowledge about CCV, much experience of climate-related events, and those who believe that both individuals and societies are responsible to address climate-related problems had higher risk perceptions. Lack of education and access to media as well as individualistic values were associated with low risk perception. There was path dependence in farmers’ decisions on the use of adaptation strategies. Besides, farmers who were financially better-off, open-to-change, and risk-taking used adaptation strategies more than those with a fatalistic attitude and adhere to traditional means of livelihood. Farmers’ adaptation decisions followed the following logic: innovative/experimental, nature-dependent, sub-optimal use of resources, or desperate decision-making. Migration was a survival strategy for farmers who were unable to respond to CCV effectively through the use of in-situ adaptation strategies. These strategies only delayed the time of distress migration instead of preventing it. The results show that farmers can improve their livelihoods through the use of adaptation strategies. However, with the highest score of 41%, the majority of the households were far from attaining sustainable livelihoods. Livestock fattening and irrigation were more effective to respond to CCV. However, adjustments of cropping practices were less effective. The effectiveness of the adaptation strategies is a function of optimum rainfall, socio-cultural factors (high self-efficacy, openness to change, and risk-taking), high adaptive capacity, access to extension support and timely supply of farm inputs, and diversification of adaptation strategies. To sum up, farmers with intrinsic motivation and a high adaptive capacity involve in multiple and high-return adaptation strategies which help them to respond to CCV effectively. Conversely, those with a fatalistic attitude and a low adaptive capacity engage in low-risk, low-cost, and low-return adaptation strategies aimed at meeting subsistence requirements. Better-off farmers are in a virtuous cycle of improvement, but the poor are trapped in the vicious circle of vulnerability. Promoting effective adaptation and building sustainable rural livelihoods require addressing the socio-cultural barriers to adaptation rooted in societal values, building the capacity of farmers through pro-poor interventions, identifying and implementing as well as scaling up agro-ecologically relevant adaptation strategies, integrating adaptation into broader development initiatives, ensuring the availability of and access to institutional support, and establishing a well-functioning market system.