The study area lies in the upper subasin of the Mormora River in Adola Goldfield of southern Ethiopia. It covers an area of 144 Sq. Km. Gold mining and exploration activities have been carried out for the last 70 years in the area. Thee include the Legadembi Primary Gold Mine (LGM)- which started operation in late 1989, many abandoned semi-mechanized hydraulic placer gold mining sites, abandoned and ongoing artisanal placer gold mining and exploration areas. The area is covered by various metavolcanics and metasediments of the Adola Greenstone Belt. Gold in the area occurs in quartz veins and silicified quartz-mica schist in association with sulphides (pyrrhotite, pyrite, chalcopyrite and galena). The main objective of the research is to evaluate the environmental impact of gold mining on the local environment (mainly waters and sediments) with respect to some heavy metals (lead, copper, zinc, iron, cobalt and nickel) and other water quality parameters with potential health effects. So as to achieve the research objectives, twenty-three stream sediment and twenty nine (21 surface and 8 ground) water and five soil samples were collected in March 2005. Analysis for heavy metals was carried out by atomic absorption spectrophotometer (AAS). Field measurements of pH, electrical conductivity (EC), temperature and turbidity were carried out at water sampling sites. Three surface water and two groundwater samples were analysed for major ions. The data are treated with the help of statistical techniques and geological and environmental geochemical maps were produced with the help of geographic information systems (GIS) technique. The following analytical results (ppm) were obtained from total size fraction of stream sedimentscobalt (19-81), nickel (11-149), copper (8-104), zinc (12-178) and lead (<1- 93); surface waters (mg/l): cobalt (<0.1-1.1), nickel (<0.1-7.0), copper (< 0.1-0.9), zinc ( <0.1-1.7) and iron (<0.1-3.8); groundwaters (mg/l): nickel ( <0.1-0.1), zinc (<0.1-0.5) and iron (<0.1-14.4) and soil (ppm) cobalt(39-98), nickel (52-277), copper (28-153), zinc (45-160) and lead (<1- 3). Nickel has the highest mean concentration in stream sediment, surface water and soil samples whereas iron has the highest in groundwater. Lead and cadmium are found below the detection limit in all water samples while copper and cobalt are below the detection limit in groundwater samples only. The values of the physico-chemical parameters of waters of the area are: temperature, 17-26 oC (surface waters) and 24-27 oC (groundwaters), electrical conductivity (EC) at 25 oC, 90-12,000 V μS/cm (surface waters) and 450-1,600 μS/cm (groundwaters) and pH, 6.1-9.1 (surface waters) and 7.2-8.5 (groundwaters). Most of surface water and all groundwater samples are slightly alkaline. The quality of stream sediments, waters and soils of the study area was assessed. The results with respect to heavy metals in sediments are compared with the local background values established by previous works for the area and that of water with the maximum allowable concentration (MAC) of World Health Organization (WHO) and the 2001 Ethiopian Standards for drinking water. This comparison revealed pollution of nickel, cobalt, copper and lead of stream sediments. Pollution of surface and groundwaters with nickel and iron is encountered. The sources of these pollutants are found to be waste rock dumps and tailings of the gold ore processing plant of the Legadembi Gold Mine and old tailings of semi-mechanized placer gold mining. Geogenic pollution of soils with heavy metals (cobalt, nickel, copper and zinc) occurs in the area. Deforestation, landscape disfiguring, soil erosion, diversion of streams and turbidity in waters are some of the main physical land degradation resulted from the gold mining and associated activities in the area. Recommendations based on the results of this study are made for further environmental investigation in the area. Key words: Environment, gold mining, heavy metals, Legadembi, pollution, sediments, water