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Background Diacylglycerol acyl-CoA acyltransferase 1 (DGAT1) has become a promising candidate gene for milk production traits because of its important role as a key enzyme in catalyzing the final step of triglyceride synthesis. Thus use of bovine DGAT1 gene as milk production markers in cattle is well established. However, there is no report on polymorphism of the DGAT1 gene in Ethiopian cattle breeds. The present study is the first comprehensive report on diversity, evolution, neutrality evaluation and genetic differentiation of DGAT1 gene in Ethiopian cattle population. The aim of this study was to characterize the genetic variability of exon 8 region of DGAT1 gene in Ethiopian cattle breeds. Results Analysis of the level of genetic variability at the population and sequence levels with genetic distance in the breeds considered revealed that studied breeds had 11, 0.615 and 0.010 haplotypes, haplotype diversity and nucleotide diversity respectively. Boran-Holstein showed low minor allele frequency and heterozygosity, while Horro showed low nucleotide and haplotype diversities. The studied cattle DGAT1 genes were under purifying selection. The neutrality test statistics in most populations were negative and statistically non-significant (p > 0.10) and consistent with a populations in genetic equilibrium or in expansion. Analysis for heterozygosity, polymorphic information content and inbreeding coefficient revealed sufficient genetic variation in DGAT1 gene. The pairwise FST values indicated significant differentiation among all the breeds (FST = 0.13; p ≤ 0.05), besides the rooting from the evolutionary or domestication history of the cattle inferred from the phylogenetic tree based on the neighbourhood joining method. There was four separated cluster among the studied cattle breeds, and they shared a common node from the constructed tree. Conclusion The cattle populations studied were polymorphic for DGAT1 locus. The DGAT1 gene locus is extremely crucial and may provide baseline information for in-depth understanding, exploitation of milk gene variation and could be used as a marker in selection programmes to enhance the production potential and to accelerate the rate of genetic gain in Ethiopian cattle populations exposed to different agro ecology condition.