This paper examined the challenges faced by the informal traders in Gondar city. Data was collected from a total of 200 sample respondents drawn from informal traders in the city. Structured interview and observation were employed to collect the required data from the sample respondents. The findings of the study revealed that three major challenges constrained the operation and profitability of the informal traders. These were lack of working capital, difficulty of getting good working place, and stiff competition from fellow traders. Hence, there is a need for provision of improved and accessible financial and infrastructural services to improve the performance of the sector.