Dairy farming is one of the leading agricultural activities in almost all parts of the world including Eritrea. Dairying in Eritrea is highly subsistence and major contributions come from small scale producers who owns have almost 90 per cent of dairy animal. There is high a demand for milk and milk products in the local market, so as a result the prices of the dairy products are increasing continuously. Supply side is remains weak especially during peak demand period. Objective of this paper is to examine the current status and future prospects of dairy industry in central region of Eritrea. Study is based on both primary and secondary sources of information. Primary data gathered from the famers who are the members of dairy cooperative societies. Thirty dairy farmers were selected through random stratified sampling techniques from Serejeka, Berik and Galanefhi subzone of Zoba Maekel. Simple percentage method has been employed to examine the current status of dairy sector in the central region of the country. Study reveals that dairy sector is struggling due to high price of fodder compared to their output price. Consequently farmers are reducing their proportion of gross profit. Low fixed price set by cooperative societies are discouraging the farmers to sell their products to the dairy centers. As a result almost 90% of small dairy farmers are selling their milk directly to the consumers bypassing the dairy cooperative societies without pasteurization. Fodder supply to this sector is major problem. Most of the farmers do not have sufficient mechanism of constant fodder supply. They (dairy farmers) do not follow the hygienic parameter is another major problem. Moreover, lack of finance, transportation, illiteracy among the dairy farmers is major hindrance for the dairy sector in the region. So, this industry is struggling for its survival and existence. To meet the challenges and constraints it faces, the sector requires renewed attention and investments from the agricultural research and development community and robust institutional and governance mechanisms.