Background Patient’s knowledge about dispensed medications is one of the major factors that determine the rational use of medicines. Objectives This study aimed to assess exit-knowledge of ambulatory patients about their dispensed medications and associated factors at the outpatient pharmacy of Mizan-Tepi University Teaching Hospital, Southwest Ethiopia. Methods A hospital-based cross-sectional study design was conducted from August to October 2021. Study subjects were selected by random sampling technique and were interviewed using a structured interview questionnaire. Binary logistic regression was used to identify factors associated with exit knowledge. At a 95% confidence interval (CI), p≤0.05 was considered statistically significant. Result Of the total 400 participants, 116 (29.0%) participants had sufficient exit-knowledge about their dispensed medication. Patients with higher educational level had increased exit knowledge of dispensed medications than those with no formal education (AOR: 5.590; 95% CI 1.019–30.666). Also, the nature of illness as being chronic significantly enlarged the odds (AOR 5.807; 95% CI 2.965–11.372) of having sufficient exit-knowledge. Participants who reported, “I do not know” and “I did not get enough information from the pharmacist” had lower odds (AOR 0.374; 95% CI: 0.142–0.982) and (AOR 0.166; 95% CI 0.062–0.445) of sufficient exit-knowledge in comparison to those who responded “I got enough information from the pharmacist” respectively. Furthermore, the odd of sufficient exit-knowledge was 7.62 times higher in those who claimed prescribing doctor as the source of information. Conclusion The majority of patients had insufficient exit-knowledge about their dispensed medications. Educational status, nature of the disease, perceived sufficiency of pharmacist knowledge, and source of information were significantly associated with exit knowledge.