The eruption of Mount Merapi has caused hard impact on smallholder farmer which is an integral part of the farm business around the disaster area. Moreover, the effect of eruption has made the area around the mountain was covered with volcanic ash, where the most covered areas are agricultural lands, including forage grasses gardens. Under the conditions, most smallholder dairy farmer are heavily dependent on dairy farm. This study aims to know the income of dairy farm, the contribution of dairy farm income on household income, and welfare level of dairy farmer households after the 2010 eruption of Mount Merapi. The research was conducted in Pagerjurang Permanent Settlement (Hunian Tetap), Kepuharjo Village, Cangkringan District, Sleman Regency, Yogyakarta Special Region, Indonesia. The location was chosen since it is the center of smallholder dairy farming after the 2010 eruption of Mount Merapi which is quite well-managed. Pagerjurang permanent settlement is the largest residential complex for people who are relocated from sensitive disaster areas of Mount Merapi. The determination of respondents in the research location was done using census method from 62 dairy farmers. Data were collected using questionnaires with interview technique. The data obtained were arranged in a tabulation and analyzed quantitatively. Income analysis was used to know the dairy farm income and farmer household income. The large contribution of dairy farm to household income of dairy farmers is seen from the percentage. To find out the level of household welfare of dairy farmer this research used poverty line indicator from Statistics Indonesia and World Bank. The result showed that average income of dairy farm has positive value. Revenue on production cost per year was IDR 18,347,565.38 per one dairy farm business or 6,437,742.24 per cattle unit. Meanwhile, the revenues at total cost was IDR 6,720,569.82 per dairy farm business or IDR 2,358,094.67 per cattle unit. Furthermore, the income of dairy farm business contributed 64.84% to the total farmer households income. This results indicates that farmer relying most of his livelihood from dairy farm business. Based on the poverty line indicators from Statistics Indonesia, there Ade 8.06% of farm households which was categorize as opor family. Whilst regarding the World Bank's poverty line criteria, 66.13% of households were classified as opor household. This findings indicates that there were households that have not been able to meet their basic needs. Research on economic analysis of dairy farmer households is important as a consideration in decisions making on the use of technology in the reason of increasing production and income. In order to face the uncertainty of environmental conditions, farmer should allocate factors of production efficiently and earn income to finance household and maintain sustainable livelihood. This research is expected to contribute knowledge on dairy farmers strategy to increase family income and welfare in the ever-changing weather, climate, and livelihood conditions. This research would formulate strategies to improve the performance of dairy farming, which are determinants of productivity, efficiency, and income.