Background: Globally about six out of ten births take place in health institutions. However, in Sub-Saharan African countries institutional delivery is very low. Also, in Ethiopia majority of women gave birth at home even though significant numbers of women attended antenatal care follow-up, particularly in the rural area. Objective: This study aimed to assess the magnitude and identify predictors of institutional delivery among mothers who gave birth in the last one year in Nejo rural district of western Ethiopia from September 1 to 30, 2019. Method: A community-based cross-sectional study was employed among 508 mothers who gave birth in the last one year in Nejo rural district of western Ethiopia from September 1 to 30, 2019. The data was collected using a semi-structured pretested questionnaire through face-to-face interviewing of the participants. A multistage sampling technique was used to collect data. Data were entered into Epi-Data version 3.1 and exported to SPSS version 21 for analysis. Binary logistic regression analysis was performed to assess the association between independent and dependent variables. The association was measured by odds ratio with 95% confidence interval and P-value <0.05 was used as the cut-off point to declare significance in the final model. Result: The magnitude of institutional delivery among mothers who gave birth in the last one year was 207 (41.4%). Mothers who attended more than secondary school [AOR=12.0; 95% CI=4.5-26.20], husbands' occupation being government employee [AOR=6.9; 95% CI=2.2-21.5], merchants [AOR=7.6;] and engaged in private work [AOR=0.09; CI=0.02-0.47], ANC visits of three times & above [AOR=2.1, 95% CI=0.00-0.006], health education on maternal health [AOR=6.2, 95% 8.12-39.1] were the significant predictors of institutional delivery. Conclusion: The study found that institutional delivery service utilization at the study area was low, which was below the health sector transformation goal of the country which was planned to make home delivery free in which this indicator is the most important one in modeling kebeles, woredas, and finally to transform woredas. Maternal educational status, husbands' occupation, ANC visits, and health education on maternal health were the most important predictors of institutional delivery service utilization. Hence, health planners, decision-makers, and other stakeholders should give due attention to maternal health improvement strategies in accessing health institutions for the rural community to increase institutional delivery.