Introduction: Khat chewing is believed to be rapidly increasing worldwide. Worldwide, it is estimated that 10 million people consume khat daily. Khat chewing practice renders certain influence on physical and psychological well being of the community and it can cause more serious adverse psychiatric, cardiovascular, dental and gastrointestinal effects. The recent sharp increase in khat consumption may not only affect the health of individuals but could also have serious socioeconomic consequences. This study was conducted to assess prevalence of khat chewing practice, its associated factors and perceived health effects among communities in Dera woreda, Amhara region, Ethiopia 2013. Methods: Community-based cross-sectional study was conducted by using both quantitative and qualitative method of data. The sample size for quantitative was determined by using single population proportion formula and the households were selected by systematic sampling method and in the selected household, one respondent was selected by lottery among members of household aged 15 years and above. Data were collected by means of a pretested questionnaire; analysis was carried out using SPSS version 16. For the qualitative part ten in-depth interviews were conducted on purposely selected individuals and sample size for this method was determined through continuing to interview participants until no new information was obtained. Results: The response rate was 98.3%. Current prevalence of khat chewing practice was 17%. Males were more likely to chew khat (AOR, 18.53; 95%CI, 7.20-47.66) compared to females. Muslims were more likely to chew khat (AOR, 4.34; 95%CI, 2.07-9.11) compared to Orthodox Christians. Respondents who had family member chewing khat were more likely to chew khat (AOR, 2.67; 95%CI, 1.15-6.21) compared to family member without a chewer. Among all the respondents, 92.8% perceived the health effects of khat chewing practice. Respondents who did not perceive health effect of khat were 5 times more likely to chew khat (AOR = 5.10, 95%CI; 1.64-15.5) compared to those who perceived health effect of khat. Conclusions: The prevalence of khat chewing practice was 17% with high proportion of the khat chewers found in the urban setting. Sex, religion, residence, family chewing habit and perceived health effect were significantly associated factors with khat chewing practice. In this study 92.8% of the respondents perceived that khat chewing practice had harmful effects on health and the perceived health effects reported were sleeping disorder, hallucination, tooth staining, anxiety, and loss of appetite, depression, constipation, gastritis, hypertension and psychosis.