The existing evidence on households' participation in Ethiopia's community-based health insurance (CBHI) scheme is limited, lacks representativeness, and lacks disaggregation. Thus, this study aims to assess households' willingness to pay (WTP) for CBHI membership and identify the factors that influence their decision to enroll. From February to May 2020, a nationwide cross-sectional household survey was conducted involving CBHI member and non-member households. The primary theories that informed this study were utility theory, social capital theory, and the health belief model. Sample included 5,976 households from 166 EAs—118 in CBHI regions and 48 in non-CBHI regions. A two-stage stratified cluster sampling used to select enumeration areas (EAs) and households from within these areas. The maximum amount of money at which participants responded "yes" in the bidding game exercise was used to measure WTP. Data were analyzed using STATA Version 16. Household expenditure was adjusted for key factors. Analyses explored WTP for CBHI by region, membership, and livelihood, with WTP based on mean maximum values. Linear regression identified influencing factors. The findings reveal that 30.9% of participants were active CBHI members. The average WTP increased with each additional family member, both in rural (AMD = 9.3 [6.8, 11.9]) and urban areas (AMD = 7.2 [1.0, 13.4]). In urban areas, WTP was also positively associated with the ability to pay (ATP) for CBHI (AMD = 64.1 [6.3, 121.8]). Male respondents and those who were literate in urban areas had higher mean WTP values of AMD = 39.8 [13.1, 66.4] and AMD = 56.8 [26.1, 87.4], respectively. Additionally, holding leadership positions in health and women's development initiatives positively influenced WTP. The study found that 30.9% of participants were active CBHI members. WTP for CBHI was higher among larger families. In urban areas, WTP was positively associated with the ability to pay (ATP) for CBHI, particularly among male and literate respondents. Community leadership roles in health and women's development also positively influenced WTP. To improve the CBHI scheme, adjustments should be made to premiums based on households' ability to pay. Community engagement should be strengthened, service quality enhanced, regional disparities addressed, and performance regularly monitored.