Children and their families living in leprosarium areas may have a lower quality of life than the general population. However, there is limited evidence on health-related quality of life and its associated factors among children living in previous leprosarium settlement areas. Hence, this study aimed to compare the health-related quality of life among children living in previous leprosarium and non-leprosarium settlement areas in eastern Ethiopia. A community-based comparative cross-sectional study was conducted among 515 randomly selected children aged 8 to 18 years living in the Amir Nur and Babile districts from January to February 30, 2024. Data were collected through interviews with children and parents using the Pediatric Quality of Life Inventory Version 4. The data were analyzed using STATA version 14. Simple and multiple linear regression was employed to identify associations between independent and outcome variables. The overall mean health-related quality of life scores were 73.98 ± 18.47 and 77.67 ± 14.72 in the child self-reports (P = 0.01) and 55.78 ± 12.03 and 55.61 ± 8.50 (P = 0.85) in the parent proxy reports in the previous leprosarium and nonleprosarium settlement areas, respectively. In multiple linear regression, child education (β = 14.69; 95% CI: 8.69, 20.69), the absence of neglected and tropical diseases (β = 4.02; 95% CI: 0.66, 7.37), and child face washing habits (β = 5.54, 95% CI: 2.14, 8.95) increase health-related quality of life. However, a previous history of neglected and tropical diseases (β = -8.54; 95% CI: -12.93, -4.15) and the absence of hand washing facilities (β = -8.57; 95% CI, -15.22, -1.92) decrease the mean health-related quality of life. Based on child self-reports, one in four children from previous leprosarium areas had poor health-related quality of life compared to children living in none leprosarium areas. Children’s educational status, their daily habits of washing their face, not having neglected, and tropical diseases had improved health-related quality of life. To improve health-related quality of life, stakeholders should pay attention to and work on the early detection and treatment of neglected and tropical diseases, child education, and proper sanitation practices in the leprosarium community.