This study analyzed the patterns and drivers of LULC dynamics in relation to the expansion of large-scale irrigated agriculture in the Central Rift Valley of Ethiopia from 1972 to 2016. Aerial photographs (1972), Landsat images (1980, 2000) and SPOT5 satellite images (2016) were analyzed using GIS tools to reveal LULC changes, and documentation, key informant interviews and focus group discussions were used to ascertain the biophysical and socioeconomic implications and drivers of these dynamics. The study revealed that cultivated and rural settlement land, and urban built-up areas had expanded at the expense of forestland, woodland, shrubland and grassland. While an increase in the production of cash crops had brought some benefits to smallholder farmers, such as access to irrigation and modern agricultural inputs and technologies, the unregulated conversion of natural vegetation to cultivated land resulted in a loss of biodiversity, deforestation, and reduction of pasture and firewood. We identified that significant LULC changes in the study area were caused by intersecting biophysical, economic, institutional, technological and demographic factors, which reinforced each other with varying magnitudes at different moments in time. These changes were underpinned by one key driver, that is, government agricultural policies that promoted investment in commercial agriculture for national and export markets. The study shows that understanding the complex interaction between the contributing factors and drivers of LULC change is crucial to inform decision-making and policies, in particular, by directing responses towards the underlying drivers of change rather than only the proximate causes.