Informal settlement is usually referred to residential areas where a group of housing units have been constructed on land to which the occupants have no legal claim, or which they occupy illegally. The causes of such squatting activities are population growth, inefficient land provision, high cost of urban living standard, and illegal land grabbing by urban speculators. These settlements create challenges for planners and urban politicians. The relationship between informality and urban land use planning is complicated. On the one hand, informal spaces have been perceived as undesirable and illegal on the other hand, there has been attempts to improve and integrate such spaces. The study aims to examine the trends and challenges of informal settlements in Addis Ababa. The study is presented in a descriptive manner. The study is based on secondary data collected from different sources. The findings confirmed that the prevalence of informal settlement and land invasion scenarios in Addis Ababa. The primary causes range from increasing rural-urban migration coupled with a high rate of urbanization beyond the current capacity of the city administration to provide affordable housing;; shortage of land supply as compared to its demand; the prevalence of land speculators; inefficiency of the city administrations’ land administration and management are among others. Therefore, it is strongly suggested that there is a need to strengthen the institutional capacity of various institutions working on land management and its administration; taking strong measure to crackdown on already mushrooming illegal land sell and speculative network, and come up with innovative solutions (modality) for affordable housing scheme.