Although progress in the fight against malaria, about 75% of the land and 60% of the population is exposed to malaria in Ethiopia. The aim of this study was to assess the prevalence and associated factors of malaria in Dilla town and surrounding rural areas, Southern Ethiopia. Institution based, cross sectional study was employed from October 01 to December 29, 2014 in health facilities. A stratified sampling technique was carried out to select representative individuals. A pre-tested structured questionnaire and blood film examination format (n=350) were used as data collection tools. Peripheral blood samples were collected and the presence of malaria parasites was observed microscopically on thick and thin blood smears. Personal data were collected through the householdbased questionnaires. Finally, data were entered and analyzed using SPSS version 20.0. The overall prevalence of malaria in the study area was 16.0% with higher infection rate in the surrounding area (53.6%) and amongst the age group of 15-24 years (35.7%). The predominant Plasmodium species detected was P. vivax (62.5%) followed by P. falciparum (26.8%) and mixed malaria infection of both species (10.7%). Chi-square result revealed that residing in houses with mud block walls and unavailability of insecticide treated bed nets were found to be significantly associated with the risk of getting malaria parasites (p<0.05). Individuals living in nearby stagnant water were found to be two times more likely to get malaria parasites than those who were far away from these risky areas (OR=2.01, 95% CI: 1.50-3.85). Houses that had been sprayed with insecticide in the past 6 months were protected against malaria infection (OR=2.45, 95% CI: 2.20-3.99). In conclusion, the prevalence of malaria reported in the current study was higher than reports in many areas of the country despite its reduction from year to year.