We investigated how smallholder farming households in southwestern Ethiopia coped with challenges related to lack in capital assets and food shortage. We focused on interactions between capital assets using, in particular, capital asset substitution as an analytical lens to classify and unpack the interactions. The most commonly mentioned challenges were related to natural and economic capitals, and these frequently caused seasonal food shortages. Households responded to the lack in capital assets or food through processes that drew on more readily available capital assets. Common ways in which households coped involved drawing on social and human capitals (i.e. increasing labor input) to address lack in other types of capital assets and lack in food. These types of asset substitution tended to facilitate the maintenance of a household's capital asset base. In contrast, some households liquidated physical and economic capital assets to cope, but these types of substitution tended to erode their capital asset base. In sum, our findings highlight the natural environment as well as social and human capitals as foundational to smallholder livelihoods and food security. In practical terms, the study provides information on coping strategies that should be avoided or modified to prevent capital asset erosion, and highlights those that should be supported and strengthened to enable the maintenance (and eventual growth) of households’ capital assets. Conceptually, the study contributes to livelihoods research by highlighting the usefulness of capital asset substitution for investigating interactions between different capital assets.