Municipal solid waste (MSW) management in developing nations, particularly Ethiopia, faces considerable issues, including high generation and low collection rates, unsafe disposal practices, and inadequate reuse and recycling efforts. This review looks into the current status of these challenges and possibilities for valorizing the potential of the organic fraction of MSW through composting and bioenergy. Aligned with global sustainability goals and emphasizing the promotion of resource efficiency and waste reduction, this review aims to identify the major challenges of MSW management in Ethiopia and valorize the MSW organic fraction to describe sustainable waste management solutions. The review process comprised a systematic approach through a comprehensive literature search of credible databases such as Google Scholar, Scopus, and PubMed from 2012 to 2023. To ensure relevance and reduce bias, 63 relevant studies were selected from an initial pool of 200 papers via a rigorous screening process utilizing the PRISMA protocol. The assessment of study quality with the AMSTAR‐2 improved the accuracy and reliability of the review’s conclusions. The authors reviewed various challenges associated with MSW in Ethiopia, including MSW generation and collection rates, composition issues, and disposal technologies. A lack of community awareness and cooperation were identified as significant barriers to successful waste management practices in Ethiopia. This review also evaluated the viability of valorizing the organic fraction of MSW through bioenergy production and community‐level composting as sustainable alternatives. The findings of this review provide valuable insights and evidence‐based recommendations for addressing MSW concerns in Ethiopia. The findings can also serve to shape policy formulation, research goals, and practical interventions focused on enhancing solid waste management practices in developing nations.