Gully expansion in the Ethiopian highlands dissects vital agricultural lands with the eroded materials adversely impacting downstream resources, for example as they accumulate in reservoirs. While gully expansion and rehabilitation have been more extensively researched in the semi-arid region of Ethiopia, few studies have been conducted in the (sub) humid region. For that reason, we assessed the severity of gully erosion and identified gully-forming processes in 13 selected permanent gullies in the sub-humid Debre Mawi watershed, 30 km south of Lake Tana, Ethiopia. In addition, the rate of expansion of the entire drainage network in the watershed was determined using 50 cm resolution aerial imagery flown in 2005 and 2013. More than 0.7 million tons (or 155 t ha-1 yr-1) of soil was lost during this period due to actively expanding gullies. The net gully area in the entire watershed increased more than 4-fold from 4.5 ha in 2005 to 20.4 ha in 2013 (> 3% of the watershed area), indicating the growing severity of gully erosion and hence land degradation in the watershed. Soil losses were caused by upslope migrating gully heads through a combination of gully head collapse and removal of the failed material by runoff. Collapse of gully banks and retreat of headcuts was most severe in locations where elevated groundwater tables saturated gully head and bank soils, destabilizing the soils by decreasing their shear strength. Elevated groundwater tables were thereby the most important cause of gully expansion. Additional factors that strongly relate to bank collapse were the height of the gully head and the size of the drainage area. Soil physical properties (e.g., texture and bulk density) only had minor effects. Conservation practices that address the most important controlling factors are principally the most effective ways of protecting gully development and expansion. These consist of lowering water table elevation and regrading the gully head and sidewall to reduce the occurrence of gravity-induced mass failures. Planting suitable vegetation on the gully face and around the boundary can also decrease the risk of bank failure by reducing pore-water pressures and reinforcing the soil. Best management practices affecting the runoff contributing catchment may decrease the overland runoff-induced gully head erosion.