Addis Ababa, the capital of Ethiopia, is undergoing a major transformation as evidenced by the development of road networks, schools, healthcare institutions, hotels, condominiums, real estates, banks, shopping centres, and many other businesses. There is a sense of jubilation on the part of authorities and the general public with the direction of the urban development policy and the remarkable gains scored thus far. What remains unnoticed, however, is that thousands of low-income households have been displaced and adversely affected by the process of urban development. The process of relocating people from the inner city to new resettlement sites in the outskirts have disrupted the relocatees' business ties with customers, broken their informal networks of survival, caused loss of locational advantage and jobs and incurred high transport costs. The overwhelming majority of relocatees reported significant income decline. Many displaced households have encountered problems related to water, sanitation, education, and healthcare. Farmers, who lost their land to investors and new resettlers complained about low compensation and lack of other economic options to make a living. In short, progress in Addis Ababa has been exacerbating poverty among a section of the population. This paper, based on a fieldwork conducted in 2006/7, describes the socioeconomic and infrastructural changes the City has been experiencing since recent years, examines the impact of the urban development policy and practice on displaced low-income households, and provides recommendations that authorities should consider to minimize development-induced livelihood disruptions.