Background Phlebitis, inflammation of tunica intima of venous wall, occurred in 13–56% of hospitalized patients. It is characterized by pain, erythema, swelling, palpable venous cord, and pussy discharge at catheter site. Cannula-related blood stream infection (CRBSI) is recognized complication of phlebitis. Adverse outcomes of phlebitis embrace patient discomfort, longer hospital stay and higher health care cost. This study aimed to determine the incidence and associated factors of peripheral vein phlebitis among hospitalized patients. Methods A hospital-based prospective, observational study was conducted between April 1 and August 31, 2020 at University of Gondar hospital, Northwest Ethiopia. A consecutive sampling method was used to recruit 384 patients. Patients were interviewed to obtain socio-demographic data. Relevant medical history and laboratory parameters were obtained from patients’ records. Presence and severity of phlebitis was identified by Jackson’s Visual Infusion Phlebitis (VIP) Scoring System. The Data were entered into EPI Info version 4.4.1 and transported to SPSS version 20 for analysis. Logistic regression analysis was used to identify associated factors with occurrence of phlebitis. P-value < 0.05 was used to declare significant association. Result A total of 384 study subjects were included in the study. The mean age of study subjects was 46 years, with a range of 19 to 96 years. The incidence of phlebitis was 70% among study subjects. Mid-stage (grade 3) and advanced-stage (grade 4) phlebitis were noticed in 136/268 (51%) and 89/268 (33%) respectively. Odds of developing phlebitis were twofold higher in patients with catheter-in situ > 96 h (AOR = 2.261, 95% CI 1.087–4.702, P-value = 0.029) as compared to those with catheter dwell time < 72 h. Female patients were 70% (AOR = 0.293, 95% CI 0.031–0.626, P-value = 0.002) lower than male patients with risk of developing phlebitis. Patients who use infusates were 53% (AOR = 0.472, 95% CI 0.280–0.796, P-value = 0.005) less likely to develop phlebitis as compared to those who didn’t use infusates. Conclusion The cannula must be reviewed on daily basis, and it should be removed if it stayed later than 96 h.