This paper examines determinants of per capita consumption expenditure and their relative contribution to income inequality in urban areas of Ethiopia. The paper has used the cross sectional data of income and consumption expenditure household survey collected by central statistics agency of year 1994/95,1999/00 and 2004/05. Generalized linear model and regression based decomposition of income inequality has been used for regression purpose and to see factors contribution to income inequality respectively. The result of the analysis shows that education level of households, Age, Public sector and informal private worker employees have significant and positive contribution to per capita consumption expenditure while household size and age square has a significant and negative contribution. Where as Decomposition of factors, After controlling for the effects of unexplained variables, has indicated that the household head’s attributes account for one-third of the total variance of (the log of) income which is 35.05% followed by economic sector(2.66%) and geographical location(0.91%). Keywords:Income Inequality, determinants and regression base Decomposition method.