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Ethiopia possesses one of the world’s most remarkable geological landscapes, shaped by the East African Rift System and marked by active volcanism, extensive escarpments, deep gorges, alkaline lakes, and globally significant paleoanthropological sites. Despite this exceptional geoheritage, geotourism remains an underdeveloped niche within the country’s tourism sector, which has historically focused on cultural and ecological attractions. This systematic review synthesizes existing academic, policy, and geological literature to assess Ethiopia’s geotourism resources and critically examine their actual and potential contributions to Local Economic Development (LED). Using an integrated Sustainable Geotourism Development Framework, the study classifies geotourism assets, evaluates current development conditions, and analyzes socio-economic benefits, constraints, and future opportunities. Findings indicate that geotourism can significantly enhance LED by generating employment, stimulating micro- and small-scale enterprises, improving infrastructure, promoting gender-inclusive livelihoods, and strengthening cultural and geological stewardship within local communities. However, the sector is constrained by severe infrastructural gaps, weak geo-interpretative services, environmental degradation, policy fragmentation, and limited community participation. Case studies from the Simien Mountains and the Afar Depression highlight both the transformative potential of geotourism and the persistent challenge of revenue leakage away from host communities. Despite these constraints, Ethiopia holds substantial opportunities to position geotourism as a strategic pillar of sustainable development through policy reform, institutional coordination, UNESCO Global Geopark initiatives, technological innovation, and community-based enterprise models. The review concludes by proposing a comprehensive set of policy, institutional, and community-level recommendations aimed at embedding geotourism within Ethiopia’s broader economic and conservation agendas. Overall, geotourism represents a promising, yet underutilized pathway for inclusive, resilient, and place-based development in Ethiopia.