Background Laboratory test results are the cornerstone for patient diagnosis and treatment. Gram staining is one of the classic laboratory test methods actively in use to differentiate bacteria. Competence assessment could help to identify gaps and make suggestions to academicians, researchers, and policy makers to address competency gaps. In Ethiopia, no evidence about competency assessment of medical laboratory professionals on gram staining technique was available. Results From 190 participants, 55(28.9%) participants scored low knowledge, 131(68.9%) scored medium knowledge and only 4(2.1%) respondents scored high knowledge. Forty eight (25.3%), 78(41%) and 64(33.7%) participants scored low, medium and high skill level from a total of 190 participants, respectively. There were 44 observations (4%) with major errors and 321 observations (28%) with very major errors from all 1140 observations. Of all observations 321(28.2%) reported without grading, 39 observations (3.4%) reported gram positive bacteria as gram negative bacteria and 15 observations (1.4%) reported gram negative bacteria as gram positive bacteria. Conclusion Most medical laboratory professionals are working without supervision and refresher training on gram stain examination and interpretation. Hence, the knowledge level and skill level of medical laboratory professionals are not satisfactory. Regular competence assessment, training and follow up are necessary to improve medical laboratory professional competence.