A cross-sectional study was conducted on the prevalence of lameness from October 2010 to March 2011 in Wolaita Soddo and the nearby Bossa Kacha and Offa Sere kebeles, Southern Ethiopia. The minimum sample size was determined to be 384 animals and the study was conducted on 399 animals. The study revealed that the prevalence of lameness was 4% (16/399) in the study area. From the considered risk factors that included milking status, pregnancy, feeding, floor type, frequency of floor cleaning, breeds, age and sex, none was found to be statistically significantly associated with lameness at 95% confidence level. From the 16 lame animals, five were milking. Daily milk yield was significantly reduced after the onset of lameness (p=0.002). The average economic loss due to reduced milk yield and cost of treatment per affected lame cow was found to be 7.33 USD (125.30 ETB). The mean length of time taken for recovery in days in the treated group (10.88) is statistically significantly lower than untreated group (14.62). The study showed significant reduction in daily milk yield during lameness in milking cows. Therefore, dairy farmers should attempt to prevent or detect lameness in lactating cows as early as possible to minimize the economic loss due to reduced milk yield and cost of treatment.