This study was carried out in Dibanko Bahir wetland, from February 2009 to January 2010, with the objective to identify and quantify the temporal and spatial variation in biodiversity & to analyze the potential socio-economic importance of the wetland. In the dry season the wetland is completely out of surface water and it is used for permanent grazing. Water quality parameters; TDS, EC, DO, pH, PO4-3, NO3 -N and temperature were measured for the three sites (at the inlet, open water and outlet) of the wetland. Temperature, EC, TDS, NO3–N and PO4-3concentration is higher in the inlet water and wet season. But pH and DO are higher in outlet water and wet season. For macrophyte sampling, five Sampling sites were stratified based on the vegetation type and area cover; transect and quadrat count technique was employed. A total of 27 plant taxa of 12 families were encountered in these sites. The species diversity (H`) and evenness (E) index was found high during post rainy season. Bird species diversity and abundance was measured using count methods, and a total of 36 bird species were recorded. The number of species encountered was different among the four seasons, with the main-rainy season having the highest diversity (H`). Black crown Crain and Cattle Egrets account the highest in dry and wet season respectively. A total of 5,418 macro-invertebrates taxa were recorded at the three sites comprising 7 classes. Class Chironomidae and Oligochaeta were encountered in all the sites. Oligochaeta was recorded with the highest no at open water site where as Chironomidae was recorded with the highest number at inlet sites. The diversity (H`) and evenness (E) indexes were higher at the outlet site and main-rainy season. Only two types of fish species Oreochromis niloticus (Labeo-barbus) and Clarias garpinus (catfish) in average count of of 13 and 6 per one hour catch effort respectively are found in the wetland. The wetland has high socio-economic potential for grazing, irrigation, water supply and ground water recharge. 60 respondents participated in the household survey. From the survey result, fishing is found to be included as an additional alternative for the improvement of the lively hood of local community around the wetland. 80% of the households had 0.1-2.0 size of land holding in the wetland. 100% of the households reported the disadvantages of living around the wetlands due to high incidence of cattle disease despite the many economic and societal benefits they gained out of the wetlands. The expansion of farmlands, settlement and intensive grazing were the main threats to the survival of biodiversities. Lack of full awareness about the value and use of wetlands by decision makers together with poor public consultation, inadequate stakeholder participation and lack of effective regulation mechanism are all hindering factors of the wetland sustainable use.