This community-based cross-sectional study was conducted among 1190 randomly selected rural households in northwest Ethiopia to assess hand hygiene practice and associated factors. Frequent handwashing with rubbing agents, drying mechanisms; and condition of fingernails were used to assess hand hygiene practice. Multivariable binary logistic regression analysis was used to identify factors associated with hand hygiene and statistically significant association was declared on the basis of adjusted odds ratio (AOR) with 95% confidence interval (CI) and p-values < 0.05. Results showed that 28.8% (95% CI 26.2, 31.4%) of the households had good hand hygiene practice. Good hand hygiene practice was significantly associated with formal education attended household heads (AOR 1.79, 95% CI 1.33, 2.40), family discussion on sanitation (AOR 1.56, 95% CI 1.08, 2.26), provision of health education (AOR 2.23, 95% CI 1.62, 3.06), and availability of water (AOR 3.51, 95% CI 1.02, 12.05). In conclusion, about one-third of the rural households had good hand hygiene practice and more than two-third had poor hand hygiene practice in the study area, and this may imply that hands in the area may play roles in spreading infections in the community. Therefore, people need to be informed to always keep their hand hygiene good.