While climate change creates the overarching biophysical stress on Ethiopian agriculture, institutional and governance structures primarily mediate agrobiodiversity outcomes, often trading evolutionary resilience for short-term productivity. This review synthesizes cross-sectoral evidence from Ethiopia’s major highland and rangeland systems to demonstrate that climate change acts as a systemic stress test, exposing latent vulnerabilities in agricultural policy, seed regulation, and land tenure systems. The widespread loss of agrobiodiversity, documented by genetic erosion rates ranging from 56% in barley to over 65% in teff and wheat, including total displacement in certain districts, is largely driven by a structural conflict between productivity imperatives and ecological stewardship. Our synthesis reveals that policy silos, top-down extension models, and regulatory biases toward genetic uniformity collectively erode the functional heterogeneity required for climate adaptation. This institutional failure necessitates a governance-centered framework that formalizes pluralistic seed systems and empowers decentralized farmer innovation. Realigning governance incentives to treat agrobiodiversity as a strategic national asset is essential for securing Ethiopia’s genetic capital against accelerating climatic stress.