Low soil pH and associated soil infertility problems are considered to be amongst the major challenges to barley production in the highlands of Ethiopia. In response to this, an experiment was conducted at low soil pH (< 5 H2O) site on the effects of different levels of lime and phosphorus (P) fertilizer on soil pH, exchangeable aluminium (Al3+), grain yield and yield components of barley during 2010 and 2011 cropping seasons. The experiment comprised factorial combinations of five lime rates (0, 0.55, 1.1, 1.65 and 2.2 t ha−1) and four P rates (0, 10, 20 and 30 kg ha−1) in a randomized complete block design in three replications. The amount of lime that was applied at each level was calculated on the basis of Al3+. Results of soil analysis after 2 years of liming showed that liming significantly (P < 0.05) increased soil pH, and markedly reduced exchangeable Al3+. Liming at the rate of 0.55, 1.1, 1.65 and 2.2 t ha−1 decreased Al3+ by 0.88, 1.11, 1.20 and 1.19 mill equivalents per 100 g of soil, and increased soil pH by 0.48, 0.71, 0.85 and 1.1 units, respectively. Amongst the liming treatments, liming at the rate of 1.65 and 2.2 t ha−1 gave significantly (P < 0.05) the highest grain yield and yield components of barley. However, grain yield obtained by applications of 1.65 and 2.2 t ha−1 lime was statistically comparable. By additions of 10, 20 and 30 kg P ha−1, grain yield of barley increased by about 29, 55 and 66% as compared to control (without P). During 2010, however, the combined applications 1.65 t ha−1 lime and 30 kg P ha−1 gave 133% more grain yields of barley relative to control (without P and lime). Therefore, sustainable barley production on acid soils in the central highlands of Ethiopia should entail combined applications of both lime and P fertilizer.