The development of underground urban environments has become one strategic response to the accelerated urbanization, the lack of land, and pressures on the environment in African cities, but its management has been poorly comprehended. The capital and the most rapid-growing metropolis in Ethiopia, Addis Ababa, is confronted with unprecedented spatial planning challenges in terms of population growth, demand, infrastructure, and sustainable growth. This essay focuses on the institutional and governance strategies that facilitate or limit underground urban development in Addis Ababa, through the lens of policy framework, regulatory tools, and institutional capacity by way of interaction between the policy and regulatory tools, and the institutional capacity. The study employs both qualitative interviews and urban planners, policymakers and stakeholders with secondary data on governance systems and land-use policies and this is on the basis of using a mixed-method framework. Results indicate that despite the preliminary regulatory frameworks that have been established in Addis Ababa, there are weak institutional coordination, lack of capacity to enforce and weak cross-sectoral governance among the institutions in the city that undermines the effectiveness of regulation. Regulatory darkness and inadequate incentives to scale underground infrastructure projects like high-speed transit, commercial areas, and utility systems are also among the barriers. However, there are possibilities to make use of the new urban policy reforms, global best practice, and building capacity to construct more consistent governance strategies. The paper highlights the need to be open, involve stakeholders, and have government business collaborations in utilizing the potential of underground space. This study adds to the discussions of sustainable urban change in African cities by offering a governance-based perspective and providing some policy implications to policymakers, planners, and global stakeholders. In conclusion, it is important that such adaptive institutions, coordinated governance and sustained political commitment must be used to drive the underground urban development in Addis Ababa as a route to the achievement of resilient and resource efficient urban futures.