Abstract: Crop production is limited by environmental factors among which moisture deficit imposed at critical stages of crop growth is the most important one. Drought stress has become the major limiting factor on plant growth and yield. Supplemental irrigation at stress periods is, hence, important for improving yield of crops. Faba bean production in Southeast Ethiopia is limited by terminal drought imposed at anthesis and grain filling stages. An experiment was conducted at Sinana Agricultural Research Center, Southeast Ethiopia to evaluate faba bean varieties in response to yield and physiological parameters. Seven faba bean varieties were tested with two moisture regimes (rain fed and supplemental irrigation) on field and in pot. The varieties have showed significant difference in yield components. Degaga, Bulga-70 and Messay gave higher yield whereas Tesfa had a lower yield. Moisture susceptibility index was calculated to evaluate susceptibility of varieties to moisture stress. Based on the index, CS20-DK and NC-58 varieties were tolerant, Shallo, Degaga and Bulga-70 were moderately tolerant and Tesfa and Messay were relatively susceptible to moisture stress. Supplemental irrigation significantly improved yield components except harvest index and thousand seeds weight. Physiological parameters did not change among faba bean varieties indicating that the varieties perform similarly in these parameters. However, physiological parameters such as transpiration rate and internal CO2 concentration were significantly improved by supplemental irrigation at anthesis whereas irrigation did not affect photosynthetic rate, water use efficiency and chlorophyll fluorescence ratio. Leaf temperature was decreased by supplemental irrigation showing a cooling effect on the crop canopy.