Undernutrition is continued to be significant public health problem worldwide. The extra calories and nutrients required to support breastfeeding make lactating mothers at higher risk of malnutrition than general population. Undernourished lactating mothers have also been found to influence both the quantity and quality of breast milk and then the nutritional and health status of their offspring. Different evidence showed that undernutrition among lactating mothers is a serious public health problem in Ethiopia in which one of every four lactate mothers are undernourished. Despite this fact, the prevalence of undernutrition among lactating women in Ethiopian was not well investigated and very limited number of studies are conducted. This study aims to assess the prevalence of undernutrition and associated factors among lactating mothers in rural Yilmana Densa District, Northwest Ethiopia. A community-based cross-sectional study was conducted among 428 lactating mothers. The data were collected by using interviewers administered structured questionnaire; and also, anthropometric measurements were taken from the study participants. Binary logistic regression model was undertaken to identify significantly associated factors with undernutrition. The prevalence of undernutrition among lactating mothers was 22.6%. Household income, food security status, dietary diversity score, number of meals, potable water source, and latrine facility were found to be significantly associated with undernourishment of lactating mothers. A significant proportion of lactating mothers in the district suffered from undernutrition and hence, to improve nutritional status of lactating mothers, strategies should focus on nutrition counseling, advancing diversified production and consumption, improvement of access to potable water and latrine, as well as effective household food security interventions.