Introduction Bipolar disorder is a severe and chronic mental illness that could continue for a lifetime. Although it is a leading cause of disability and impairments for significant numbers of patients, the levels of functional outcomes have not been studied in Ethiopia. Therefore, this study aimed to assess the functional outcome levels and associated factors among bipolar disorder patients in Northwest Ethiopia. Method Hospital-based cross-sectional study was employed among bipolar disorder patients attending psychiatric clinics, in Northwest Ethiopia, from April to June 2021. Systematic random sampling was used to get respondents. Descriptive and inferential statistics were done. Data were entered into EpiData version 4.6.02 and exported to SPSS Version 22 for analysis. Bivariable and multivariable binary logistic regression analysis was used to identify the factors associated with functional outcome levels, and p value < 0.05 was considered significant with 95% CI. Result Of the total 423 study participants approached, only 411 completed the questionnaire, with a response rate of 97.2%. The median (IQR) level of functional outcome was 6 (0–22) and 40% of the study subjects were impaired. Leisure time was the most normal functioning domain (92.2%), whereas cognitive (43.5%) and occupational (41.6%) domains were the most impaired domains. Unemployment (AOR (95%CI) = 3.9 (1.46–10.49), obesity (AOR (95% CI) = 6.5 (1.22–34.58), depressed and manic mood phases (AOR (95%CI) = 5.2 (2.84–9.35) and (AOR (95%CI) = 7.8 (3.31–18.34) respectively, medication non-adherence (AOR (95% CI) = 3.2 (1.71–6.05), and relapsed once or ≥ twice (AOR (95%CI) = 2.2 (1.25–3.98) and (AOR (95%CI) = 8.3 (2.73–25.30), respectively, were some of the important predictor variables that were significantly associated to the functional impairments levels. Conclusion The median of functional outcomes levels was found in an acceptable range; however, significant numbers of bipolar patients were functionally impaired. Moreover, patients still need unrestricted interventions in the cognitive and occupational functional domains. Socio-demographic, clinical, medication, and psychosocial variables were significantly associated with functional outcomes. Bipolar patients need to be followed and managed to improve their functional outcome and all stakeholders should be involved to achieve the recommended levels.