The study was conducted in and around Boditti town, Southern Ethiopia with the objective of characterizing milk production systems in the area. A total of 120 households were randomly selected from four Kebeles, two in Boditti town and the rest from surrounding. Two major dairy production systems, namely urban and rural or mixed crop/livestock production systems were identified. Average cattle holding per household in the area was 3.4 with 1.1 lactating cows. Husbandry practices such as feeding, watering, housing, breeding, milking, calf rearing, waste management, and record keeping were different in the two production systems. Overall, about 3.25 liters of milk was produced daily per household. Major constraints for dairy development in the area include: animal feeds, land and water scarcity, discouraging market, low rate of genetic improvement, etc. Rapid urbanization coupled with increase in human population and standard of living of the urban dwellers and conducive climate of the area can be considered as an opportunity for the development of dairy in the area. Therefore, market opportunity and linkages are the major issues for smallholder dairy development in addition to provision of the required services and resources, provision of credit, extension and training.