BACKGROUND: Malaria kills millions around the world. Until recently it was believed to be a disease of rural areas, since the Anopheles mosquito, which transmits Plasmodium species breeds in rural areas. Urban malaria is emerging as a potential, but "avertable" crisis, in Africa. In view of the rapidly growing number of small and medium-sized towns in Ethiopia there is a pressing need to improve the understanding of the epidemiology of malaria. Therefore, the aim of this study was to determine malaria prevalence and associated risk factors in Jimma town. METHODS: A cross-sectional study was carried out in Jimma town from April 1 to May 28, 2010. 804 study participants were included from 291 households for microscopic examination of malaria parasites. Socio-demography data and risk factors were collected using structured questionnaires. Logistic regression analysis was done using SPSS 15.0 statistical software. RESULTS: From a total of 804 study participants in current survey only 42 (5.2%) were positive for malaria parasites. Plasmodium vivax, Plasmodium falciparum and mixed infection accounted 71.4%, 26.2% and 2.4%, respectively. Higher malaria prevalence rate was observed among under-five children (11%). Those who do not use insecticide-treated bed nets (ITN) were more likely to be infected with malaria (OR = 13.6; 95% CI 4.9-37.2, p < 0.001) compared with those who use the ITN. Living in areas where stagnant water existed (OR = 2.1; 95% CI 1.00-4.2, p = 0.047) and its distance of existence <1 km from the house(OR = 2.1; 95% CI 2.0-15.8, p = 0.001) were more likely to be infected with malaria parasite compared with those who live away from stagnant at a distance greater than 1 km. CONCLUSION: Malaria is a major health problem with P. vivax becoming a predominant species in the town. The prevalence was strongly associated with proximity of residence to potential mosquito breeding sites. Malaria is affecting significant proportions of the urban settlers and human activities nevertheless play an important role in bringing the mosquito breeding sites closer to residences.