This work discusses the Ethiopian urban land lease policy and its characteristics, challenges of its implementation and the remedies to be under taken. Achieving efficient land use, encouraging investors and investment and realizing the cost of urban land and make an efficient use of it are some of the major national and regional goals in Ethiopia. To achieve these goals, the government of Ethiopia has accepted urban land lease policy as the alternative land tenure system so as to provide a room for individuals and investors to land to use land use rights through transferring from the state to land users. However, Opinions collected from residents, investors and financial institutions in Addis Ababa and the lease towns of the Amhara national regional state indicate that there are problems related to the implementation of the policy in an efficient utilization of urban land in encouraging investment and the appropriate use of the money generated from lease. Hence, the writer argues that Institutional constraints, legal gaps and proper land and mortgage registration systems should be given due attention so as to get the desired objectives of the lease policy.