The main objective of this research is to investigate the effect of Investment diversification on banking financial performance. The researcher used the deductive and quantitative method to present the conceptual framework for Investment diversification and Egyptian banking performance. The researcher used Two-stage least-squares regression to analyze data collected the annual reports of the Egyptian Central bank related to the banking sector. The population for this study comprised of the 38 banks in Egypt. Secondary data was obtained from the reports published by the Central Bank of Egypt (CBE) which aggregates the financial soundness indicators of the Egyptian banking sector in the period from 2011 till December 2020. The results of the study showed there is a significant negative effect of the Investment diversification indicators in terms of Loans and Discount Investment Ratio, on the dependent variable of the Profitability construct, at a significant level less than (0.05), but we have also a significant positive effect of the Investment diversification indicators in terms of Securities Investment Ratio and Loans and Discount Investment Ratio on the dependent variable of the Liquidity construct, at a significant level less than (0.05). This validates partially the third research hypothesis; There is a significant effect of the Investment diversification on banking performance in terms of the Profitability and Liquidity Indicators.