Irrigation systems require active involvement of the community for sustainable operation to meet the intended objectives. However, farmers participation in small-scale irrigation in Ethiopia has largely been peripheral. Therefore, this study identified and analyzed, the socio- economic and institutional factors affecting participation of smallholder farmers in small-scale irrigation and its effect on household income in Deder district of East Hararghe Zone. Two stage sampling procedure was used to select sample respondents.First, irrigation user kebeles were identified and four sample kebeles were randomly selected. At the second stage, 150 sample respondents were selected usingstratified sampling, probability proportion to size and simple random sampling method.A cross-sectional survey method was used and data was collected through semi-structured interview schedule. Descriptive statistics and Heckmans two-stage estimation model were used for dataanalysis. The analysis revealed that sex of the household head, availability of family labor force,total livestock holding and access to extension service are significant factors affecting both participation in small-scale irrigation and irrigation income.Whereas,distance from households residence to the water source, size of cultivated land andperceived soil fertility status are significant factors affecting participation in small scale irrigation and land under irrigation is significantly affect irrigation income.Application ofthe right agricultural practice is important to increase agricultural productivity and production. Irrigation is one means by which agricultural production can be increased to meet the growing food demands. Therefore, smallholder farmers should be assisted and encouraged to participate in small-scale irrigation thereby improve their production and income.