The objectives of the study was to estimate technical efficiency and to identify factors that cause efficiency differentials among sample red-pepper producers in the District based on cross-sectional data obtained from a sample of 122 randomly selected smallholder red-pepper producers by employing multistage sampling technique. A stochastic frontier Cobb-Douglas analysis approach with the inefficiency effect model was used to simultaneously estimate the technical efficiency and to identify the determinants of efficiency variations among Smallholder red-pepper producers. The maximum likelihood parameter estimates showed that red-pepper output was positively and significantly influenced by area under red-pepper, DAP, urea and human labor. The discrepancy ratio, γ, which measures the relative deviation of output from the frontier level due to inefficiency, was about 83%. This implies that about 83% of the variation in red-pepper output among the sample respondents was attributed to technical inefficiency effects. The estimated mean level of technical efficiency for smallholder red-pepper producers was about 83%. This reveals that there exists a possibility to increase the level of red-pepper output by about 17% through exploiting the existing local practices and technical knowledge of the relatively efficient farmers. The estimated SPF model together with the inefficiency parameters shows, education, credit service, livestock holding, and extension contact negatively and significantly affected technical inefficiency of red-pepper production implying that improvement in these variables improves technical efficiency. However, age and plot distance positively and significantly affected technical inefficiency showing that this variable has negative influence on technical efficiency. As a recommendation, emphasis should be given to improve the efficiency level of those less efficient farmers by adopting the practices of relatively efficient farmers in the in the study area.