The study investigated the effect of Community-Based Paid Extension (CPE) on vulnerability reduction of smallholder dairy farmers. Randomly sampled 255 farmers were interviewed together with 15 key informants’ interview. Both statistical analysis and thematic approach were employed to achieve triangulation. In about 68 % of cases, CPE reduced vulnerability to a degree experienced as ‘moderate’, whereas 20 % of them experienced a ‘high’ reduction in vulnerability. The CPE has addressed wide ranges of vulnerability of smallholder dairy system. The regression analysis confirmed the importance of sustainable and frequent paid extension service at community level. Others factors such as education level of the farmers, use of different interpersonal and mass extension media, as well as positive change in livelihood assets also significantly influence vulnerability reduction of the smallholder dairy farmers. CPE deserves dissemination throughout the country and seeks special dairy extension policy organized around it for rapid rural development. Manuscript profile