Households combine capital assets in a process involving human agency and resourcefulness to construct livelihood strategies and generate well-being outcomes. Here, we (1) characterized types of livelihood strategies; (2) determined how different capital assets are associated with different livelihood strategies; and (3) determined how livelihood strategies differed in food security outcomes. We conducted a survey in southwestern Ethiopia and used principal component and cluster analyses. Five types of livelihood strategies, which differed mainly in food and cash crops comprising the strategy, were identified. These were, in order of decreasing food security: ‘three food crops, coffee and khat’, n = 68; ‘three food crops and khat’, n = 59; ‘two food crops, coffee and khat’, n = 78; ‘two food crops and khat’, n = 88; and ‘one food crop, coffee and khat’, n = 44. The livelihood strategy ‘three food crops, coffee and khat’ was associated with a wide range of capital assets, particularly having larger aggregate farm field size and learning from other farmers. A generalized linear model showed that livelihood strategies were significantly associated with food security outcomes. Particularly, a high number of food crops in a strategy was linked with relatively high food security. In this context, diversified livelihood strategies primarily through having a mix of food crops for subsistence, in combination with cash crops for income, are important for food security. This suggests a need to rethink dominant policy narratives, which have a narrow focus on increasing productivity and commercialization as the primary pathway to food security.