The author looks at the feasibility and potential of instituting small-scale irrigation dams to reduce Ethiopia s dependence on rainfed agriculture and the associated food insecurity. He develops a theoretical framework to assess the welfare implications of irrigation development programs and provides empirical evidence from microdam construction and reforestation projects in northern Ethiopia. The author pays particular attention to health-related costs of establishing small-scale irrigation dams in areas prone to waterborne diseases. While the theoretical analyses imply that the net welfare impacts of irrigation dams cannot be known a priori due to potential health costs, the empirical evidence shows that current agricultural yield and farm profit have increased in villages with closer proximity to the dams than in those more distant. The increased disease incidence due to standing pools of water has, however, led to significant declines in the returns from investment in irrigation water. Households with poor health are less likely to adopt productivity-enhancing as well as resource-conserving technologies, which are crucial for achieving the ultimate goal of sustainable agricultural development. The ensuing sickness has also led to reduction in labor allocation to off-farm activities. The findings underline the importance of weighing beforehand the magnitude of potential economic benefits against health costs of water development programs. The overall evidence, however, suggests that carefully designed irrigation dams could significantly improve agricultural production and food security, particularly in areas where waterborne diseases pose negligible risk to health or can be cost-effectively controlled.