Background Adverse drug events (ADEs) are an important public health problem with considerable clinical and economic costs. However there are limited studies of ADE incidence in adult inpatients in low-income countries, particularly in Ethiopia. Hence, this study aimed to assess the incidence of adverse drug events and associated factors in patients hospitalized in the medical wards of Wolaita Sodo University teaching referral hospital (WSUTRH). Methods A prospective observational study was conducted involving 240 patients admitted to the medical wards of WSUTRH. A checklist was used for data collection, while standard tools were employed for assessing the probability and characterization of ADEs. A multifaceted approach involving daily chart review, patient interview, attendance at ward rounds and/or meetings, and staff reports were employed to collect the data. To identify factors independently associated with ADEs, logistic regression analysis was conducted using Stata version 15. Results Patients were followed from ward admission to discharge, accounting for 2200 patient-days of hospital stay. Overall, 976 medications were ordered during the hospital stay. Sixty-four ADEs were identified with an incidence of approximately 27 per 100 admissions and 29 per 1000 patient days. Of the total ADEs, 59% were preventable. Regarding the severity, 2% of the ADEs were severe, while 54% were moderate. The risk of ADEs increased with longer hospital stay (LOHS) (p = 0.021), in patients with blood and immune disease diagnosis (p = 0.001), use of cardiovascular medicines (p = 0.028), and an increase in the number of medications prescribed (p = 0.021). Conclusions In this study, ADEs were identified in about one-quarter of the participants. Longer hospital stays, blood and immune diseases, cardiovascular medicines use, and multiple medication use had increased the likelihood of ADE occurrences. The majority of the ADEs were preventable, indicating the existence of a window of opportunity to ensure patient safety.