This study deals with three interrelated problems. First, it pursues the quest for local knowledge to understand climate variability and change at local levels. Due to controversies, uncertainties, skepticism and embedded economic and political interests in the climate change discourse, effective world collective action is more likely to delay for quite some time to come. Moreover, as climate change discourse remains very weak at engaging local knowledge, policies that emanate from the discourse might be less responsive to local climate problems both in terms of policy ingredients and time frame. So, having highlighting the paramount importance of local knowledge, this study documents and critically analyzes this knowledge system among subsistence farmers in Ethiopia. Secondly, it analyzes the economic impacts of climate variability and change and adaptation through quantitative methods with a special focus on crop production. Finally, it analyzes the factors that influence adaptive behavior. In so doing, it challenges the traditional approach of adaptation research and brings in a conceptual framework borrowed from psychosocial theory and empirically tests the approach in explaining adaptive behavior of farmers.