Watershed development improves the economic, social, and environmental status of rural communities, and mainly the lives of rural poor people. Our study identified the household level socio-economic factors influencing sub-watershed development impacts in Ethiopia. A household survey was conducted to collect data from 1,080 respondents in nine districts in southern Ethiopia. The results revealed that age, educational status, and land size of respondents statistically significantly influenced the economic, social, and environmental impacts of sub-watershed development in their community. Those respondents who were older, with more completed years of education, and had relatively larger land size, perceived more sub-watershed development impacts. Social position of the respondents also influenced the economic and environmental as well as the social impacts of sub-watershed development, with community sub-watershed development committee members perceiving more impacts. Participation in sub-watershed development significantly positively influenced (p < 0.01) the impacts of sub-watershed development, indicating that the perceived sub-watershed development impacts were different for the participating and non-participating respondents. We suggest that raising awareness and dialogue with the community should precede similar community development practices to ensure community involvement at all stages for better watershed development impact.