The current Ethiopian economy is based on agriculture and transition from subsistence to commercial agriculture, often referred to as the commercialization of agriculture. Commercialization of agriculture is therefore, the strategy Ethiopia is following to bring dynamic change to transform the traditional agriculture of smallholder farmers. As a result, this paper reviews the literature on smallholder commercialization to explore the conceptual developments in smallholder commercialization, measurements in the degree of commercialization, and the major determinants of smallholder commercialization. This review provides an overview of recent evidence on what factors affect smallholder farmers’ commercialization in Ethiopia and what factors contribute to the improvement of rural livelihoods. According to the empirical reviews, the major determinants of smallholder farmers’ commercialization in general are classified in to eight. These includes, population growth and demographic change, technologies, institutions, risks, markets and their integration, transaction costs, asset holdings of the households and policy aspects. Generally, the paper also investigates policy recommendations made by different authors aimed at facilitating the smooth process of smallholder agriculture from subsistence to the market oriented system. Based on the review, the paper draws general conclusions and directions for future research.