Population growth and ever increasing urbanization have lead to the rapid growth and expansion of cities, which have been overwhelmed by a sudden increase in travel demand. Urban transportation is a critical concern in most developing countries. Ethiopia is no exception as an increasing urbanization is taking place. Like other African cities, Addis Ababa has experienced physical expansion and rapid population growth which has created high transportation demand. In Addis Ababa, since car ownership is very low, majority of residents depend on public transport, which is shortly supplied. Minibus taxi transport service is one of the public transport services which has greater modal share next to walking in the city. Until 2011, taxi transport was unregulated by the government with regard to route selection. They were operating every parts of the city without any restriction of routes. This created big opportunity for taxis to operate in areas where there is profit. This in turn results in discrimination; places that are far from the city center were not getting taxi service. For this response, the government has introduced zonal taxi transport system. The purpose of this study has been to assess the effect of zonal taxi transport system on the level of taxi transport service with special reference to Addis Ababa, Ethiopia. The study has been focused on the changes brought by the regulation into taxi transport service, the existing level of taxi transport service and taxi users’ level of satisfaction towards taxi transport service after the regulation put into place. In order to undertake this study, survey questionnaire, interview and observation were carried out to collect primary data from sample respondents in the study area. Both qualitative and quantitative techniques were used for analyzing the data. In addition to the above sources, relevant literature and essential documents were also reviewed. The findings of this study showed that the regulation has brought many changes in the taxi transport industry. With zonal taxi transport system, taxi station attendants are legally organized, taxi owners are organized and established taxi owners’ association, the idea of taxi zoning came into place, each taxi has forced to have a destination sign posted at the roof of each vehicle and taxi operators must post taxi transport tariff inside the vehicle. The study result also revealed that since taxi operators stick to one route, their livelihood is highly affected. The regulation has affected them negatively as compared to the situation before zonal taxi transport system. On the issue of service quality, the study showed that taxi operators’ behavior, the way taxi users get into taxis, waiting time to get taxis, time to reach taxi terminals and comfort of seating in taxis are those that are improved by zonal taxi transport system. However, the regulation does not bring any change with regard to time spent onboard, waiting environment for taxis at taxi terminals, responsiveness of transport bureau towards transport related problems, theft and traffic congestion as compared to the situation before zonal taxi transport system.