Understanding farmers’ needs and local genetic resources are crucial steps to improve and conserve the potato crop. A study was conducted to understand what potato traits Ethiopian farmers consider most important, and to characterize the diversity and distribution of local varieties. Growers from six districts were surveyed in 2012 and 2014. Based on the survey results, participatory variety selection (PVS) activities were conducted in two districts during two production seasons. Simultaneously, local varieties were collected from northwest and southern Ethiopia and characterized using molecular and morphological markers. Farmers identified 23 traits they considered important for variety selection, with the degree of importance for each trait varying across gender groups, agro-ecological zones, and growing seasons, as well as with extent of market access. The distribution of local varieties varied by agro-ecological zone, cropping system and proximity to markets. Our genetic fingerprinting and morphological characterization further revealed that, 34% of 44 local potato varieties collected are truly unique, the rest were duplicates, known by different names. These unique Ethiopian local varieties harbour considerable genetic variation, compared to the variation found in European and North American clones. Although local varieties may have lower yield than commercial varieties, they have other desirable attributes that make them well suited for alternative uses and different agro-ecologies.