Papaya is among the most economically important fruit crops cultivated in Ethiopia supporting the livelihood of thousands of people. Anthracnose of papaya caused by Colletotrichum gloeosporioides is the major limitation that threatens the production and consumption of papaya fruit worldwide. This investigation was initiated to determine the current status of papaya anthracnose and identify factors influencing postharvest loss of papaya fruit in Assosa Zone, western Ethiopia. Field and market assessments were conducted in three major papaya-producing districts of Assosa Zone namely Assosa, Bambasi, and Homosha. Data on the disease intensity of anthracnose was recorded both in the field and in the market. Furthermore, factors associated with postharvest disease development were recorded through administration of a pretested semi-structured questionnaire to randomly selected papaya producers, wholesalers, and retailers. The results revealed that anthracnose of papaya was prevalent in all assessed localities, nevertheless, there was a significant (p < 0.05) difference between districts and peasant association in intensity of disease. At the orchard level, the disease incidence and severity ranged between 21.30–33.87% and 10.90–20.83%, respectively. Similarly, postharvest anthracnose incidence and severity ranged between 47.04–60.85% and 28.84–47.95%, respectively. Morphological and pathological identification of pure cultures from symptomatic fruits revealed that C. gloeosporioides was the causal agent of postharvest anthracnose of papaya in the Assosa Zone. Moreover, poor postharvest practices such as wrong methods of harvesting, improper handling of produce, and poor or improper transportation facilities are some factors that significantly influence postharvest disease development. This empirical evidence revealed that anthracnose is the major challenge to papaya production and utilization in Assosa, Western Ethiopia.