Deforestation and habitat fragmentation are the major environmental concerns in southwest Ethiopia. Understanding woody species diversity and socio-economic factors causing destruction of natural forests is crucial in the management of the remnant forest ecosystems. However, the forest in south west Ethiopia is poorly studied. This paper examines the diversity, regeneration status, socio-economic importance of the forests in Kaja Araba and Tula forests, southwestern Ethiopia. A systematic sampling strategy was used to collect vegetation data from the natural forests, while Participatory Rural Appraisal (PRA) method was employed to generate the socio-economic data. A total of 60 square plots (30 for each forests measuring 10 m × 10 m) were established along line transects laid across the forests. Primary data were collected by field observation, semi-structured interview with key informants and discussion with relevant stakeholders. A total 51 woody species representing 25 families were found in the study area and of all the species 30 (59%) were trees, 18 (35%) trees/shrubs, and 3 (6%) shrubs. The most species rich families were Rubiaceae, Fabaceae, Euphorbiaceae and Moraceae. The Shannon diversity and evenness of woody species in Keja Araba forest are 2.81 and 0.79, respectively and in Tula forest they are 3.14 and 0.86, respectively. Millettia ferruginea is the most frequent and abundant species at Keja Araba natural forest, while Vepris dainellii and Phoenix reclinata are the most frequent and abundant woody species at Tula natural forest, respectively. The total basal area of woody species in Keja Araba forest is 2612 m²·ha^﹣1 and in Tula forest the value is 3751 m²·ha^﹣1. In Keja Araba forest, the species with the highest IVI value are Sapium ellipticum, and in Tula forest it is Schefflera abyssinica. The results on the importance value index (IVI) and DBH class distributions show that the species with low IVI value and poor regeneration status need to be prioritized for conservation. Data collected from the key informants reveal that the forest is the major sources of fuel wood (94%), forest coffee and spices (80%), construction material (78%), timber (60%) and farm implements (58%). The forests are also sources of medicines, animal fodder, bee forage, handles tools and household utensils. Anthropogenic factors such as expansion of agricultural land, fuel wood collection, charcoal making, land use change by investors and settlements of people are responsible for destruction of natural forest in the study area, in descending order of severity. Thus, it is important to give conservation priority to the last Afromontane forest remnants in southwestern Ethiopia to achieve sustainable utilization of the forest ecosystems.