Foot and mouth disease (FMD), a highly contagious and economically important disease of cloven‐hoofed animals, is endemic in Ethiopia. Foot and mouth disease outbreak investigation and follow‐up studies were undertaken to identify the causative serotype, determine the morbidity and mortality, and estimate the economic impact of the outbreaks in selected districts of Northwest Ethiopia. The serotype of FMD virus involved in the outbreaks was identified by antigen detection ELISA from clinical samples. Morbidity, mortality and economic impact of the outbreaks were assessed based on data collected from 738 smallholder farmers in a mixed crop‐livestock (MCL) production system and from five dairy farms in the commercial dairy production system. The outbreaks were confirmed to be due to FMD virus serotype O. The animal level morbidity in clinically affected cattle herds was 68.1% for MCL production system and 54.5% for commercial dairy farms. The mortality in cattle in the MCL system was 0.4% and no mortality was recorded in the commercial dairy farms. The animal level morbidity in sheep and goats in the infected flocks was 35.7% but no mortality was seen in these species. The herd/flock level morbidity of FMD in outbreak affected kebeles of MCL system was 57.2% for cattle and 8% for sheep and goats. The economic losses due to milk loss, draught power loss, mortality and treatment cost were on average USD 34 (interquartile range: 9.4–44.4) per affected herd in the MCL system and this was statistically significantly lower than the USD 459.1 (interquartile range: 400.0–486.2) per affected farm in the commercial dairy farms (p < .05). These economic losses have significant impact in the livelihood and income of affected farmers in both production systems. Future work should focus on the implementation of control measures that mitigate the economic impact of the disease.