Federalism as a political idea is very important instrument to reconcile the principles of unity (shared-rule) and diversity (self-rule) typically in multi-national states. However, it is not a universal remedy for all challenges of ethnic diversity rather it has considered to be a means to achieve the end. The very objective of this paper is to critically analyze the emerging issues threatening the ethnic unity in Benishangul Gumuz Regional State (hereafter used as BGRS) since 1991. This study is undertaken based on both secondary and primary sources of data. In this context, the finding of this study demonstrate that the so-called indigenous and non-indigenous divide poses a great challenge to the principles of federalism in BGRS and it also appears incompatible with the provisions of FDRE constitution. This has been generating disunity or controversy among the ethnic groups, since every Ethiopian citizen is entitled to equal rights wherever she or he resides in the country. Recently, this dichotomy brought the indigenous versus non-indigenous divide to the front was the so-called deportation of Ethiopians within Ethiopia by the act of some top political actors in the region. Cultivating the spirit of promoting unity in diversity in BGRS is being checkmated by complicated ethnic identity formation in which rights and entitlements of some groups are being shaped down by the political actors who are able to use the ideology of difference to undermine ethnic group rights of others. At this point, everyone could understand that constitutional dichotomy alone is not affected the ethnic unity of BGRS, but the constitutional division coupled with exclusionary political practice on non-indigenous ethnic groups is seriously threatening the notion of unity in diversity in the region’s political environment. In addition to this, collected evidences vividly confirm that absence of effective political leadership and the prevalence of extreme corruption in different levels of government are simultaneously threatening sub-national unity of BGRS

Keywords: Federalism; Ethnic Conflicts; Ethnic Unity; Domestic Migration, BGRS; Non-Indigenous and Indigenous Ethnic Groups.