Grounded in the Sustainable Livelihood Framework (SLF), this study investigates the determinants of livelihood diversification (LD) and its relationship with food security among farming households in Northwest Ethiopia. Data were collected from 375 households across three agroecological zones using a multi-stage sampling approach. A double-hurdle model was applied to analyze both the decision to diversify and the intensity of diversification, with Beta and fractional logit models employed as robustness checks, while a multinomial logit model assessed the determinants of diversification strategies. The results indicate that household demographics, market distance, and participation in climate change training have a significant influence on both the likelihood and type of diversification strategies adopted. Livelihood diversification was strongly and positively associated with food security, although its effectiveness varied depending on household and contextual characteristics. While agroecological zones had limited influence on the overall decision to diversify, they played a critical role in shaping the composition of diversification strategies, with the adoption of combined agricultural and non-agricultural income sources being particularly sensitive to local environmental conditions. Further, qualitative evidence confirmed that households adapt their income sources to local environmental conditions. These findings underscore the importance of designing interventions that integrate household-level characteristics with localized livelihood contexts, suggesting that policy should prioritize context-specific support, such as promoting non-agricultural opportunities in highland areas and encouraging sustainable natural resource management in lowland areas rather than relying solely on broad agroecological zoning.