The politics of ethnicity was formally institutionalised in Ethiopia in 1991 with the introduction of ethnic federalism. This study deals with emerging ethnic identities and the dynamics of the inter-ethnic relationship between the Guji and Burji peoples in south Ethiopia. The article argues that, following the enunciation of ethnicity as a leading political order in 1991, identities have been articulated in such a way that past historical incidents and memories have been reactivated and old labels have been redefined by ethnic entrepreneurs for various motives. This promotes (re)construction of ethnic identities and inter-group polarisation. In the Guji–Burji case, it is this fragile relationship that is easily changed into inter-ethnic conflict as a result of competing interests over resources. The article concludes that while the cause of the current Guji–Burji conflict is primarily economic in nature, it took on an ethnic dimension within the context of politicised ethnic identities that hardened group boundaries. Synchronising past relationships – both conflicting and harmonious – with the contemporary scenario, the article tries to shed some light on the dynamics of the Guji–Burji relationship, focusing particularly on the post-1991 political order in Ethiopia and its local implications.