The Ethiopian urban informal sector is a significant component of the country’s economy, comprising an estimated 40% to 50% of the total workforce. Despite its economic importance, this sector faces numerous challenges related to social integration and psychological well-being. The approach will integrate qualitative research methods such as focus group discussions, semi-structured interviews, and thematic analysis of existing literature to synthesize insights from various perspectives including psychology, sociology, and economics. This theoretical framework provides a comprehensive overview of the psychological landscape within the Ethiopian urban informal sector, highlighting areas that require further empirical research to inform targeted interventions and policy development. Policy makers should prioritise initiatives aimed at strengthening social safety nets and enhancing access to mental health services for informal sector workers. Community-based support structures need to be strengthened to foster resilience and mitigate psychological burdens.