Background. Many people with mental illness perceive and experience stigma caused by other people’s knowledge, attitudes, and behavior. The stigma can lead to patients’ impoverishment, social marginalization, poor adherence to medication, and low quality of life, worsen the disease, decrease health-seeking behavior, and have a negative impact on socioeconomic well-being. Therefore, this study aimed to explore these issues. Objective. To assess the magnitude and associated factors of perceived stigma among adults with mental illness in an Ethiopian setting. Methods. A facility-based, cross-sectional study design with a consecutive sampling technique was employed from September 1 to 30, 2012. Data for perceived stigma were assessed by using the perceived devaluation-discrimination (PDD) scale from new or returning patients. The data was analyzed by using the Statistical Package for the Social Sciences (SPSS) version 20. The results were described with the frequency table, graph, mean, and standard deviation. Bivariate analysis was used to get candidate variables for multivariate logistic regression analysis. Variables with a P value of < 0.05 at multivariate analysis were considered statistically associated with perceived stigma. Results. A total of 384 participants were interviewed and the response rate was 100%. The prevalence of high and low perceived stigma was 51% and 44%, respectively. Having substance use history (AOR=0.6, 95% CI: 0.4–0.9) and family support (AOR=2.5, 95% CI: 1.5–4.3) and medication side effects (AOR=0.6, 95% CI: 0.5–0.8) were associated statistically with higher perceived stigma of people with mental illness. Conclusion. Perceived stigma is a major problem of adults with mental illness in this outpatient setting in Ethiopia. Patients who had substance use and family support and medication side effects were more likely to have high perceived stigma. Therefore, screening and management of substance use, social support, and medication side effect should be strengthened for people with mental illness.