This study sought to examine the direct and indirect influences of school climate characteristics and the mediating role of teacher professional identity to the development of teachers' professional capital using data from 302 primary and middle school teachers of Banja "woreda," Amhara Region, Ethiopia. Results of Structural Equation Modeling analysis revealed teachers' perception of school climate had a statistically significant and strong direct influence on their professional identity development but did not have a significant direct influence on their professional capital development. Mediation analysis has shown that school climate had a statistically significant and strong indirect influence on professional capital development, i.e. teachers' perceived professional identity fully mediated the effect of school climate on their professional capital development. The SEM analysis also disclosed the direct effect of school climate on teachers' professional identity and professional capital development and the direct effect of professional identity on teachers' professional capital development.