In order to describe the ways of handling, processing and marketing of milk in urban and peri-urban production systems of the North western Ethiopian highlands, 256 and 54 dairy farms were selected for survey and monitoring data collection, respectively. Due to poor market access and high transaction costs and the perishable nature of raw milk, the amount of sold milk (products) and prices were significantly lower for peri-urban producers. Prices were also low during fasting periods and during the wet season; when milk production was reactively high. Traditional ways of milk processing at household level include practices which may contain risks for product quality affecting consumers’ health. Providing basic handling and health education for producers therefore is likely to result in improved milk (product) quality on the markets. Direct delivery to the nearby consumers was the largest primary milk outlet for producers of both systems, while retailers and milk cooperatives were the second most common outlets for the urban and the peri-urban system, respectively. Therefore, to enhance dairy production and marketing, milk co-operatives that could be able to market larger volumes and sufficiently reduce transaction costs should be supported by governmental and non-governmental organisations through providing technical and infrastructural support.