BackgroundChildbirth is a complex process that requires the safest care to prevent maternal and neonatal complications. The proportion of births occurring at health institutions in Ethiopia is still below expected (26%), which significantly contribute to a large number of maternal deaths. Hence, identifying factors affecting institutional delivery is crucial. ObjectivesThe main objective of this study was to assess factors affecting institutional delivery among women who had a live birth in Ethiopia within five years preceding Ethiopian Demographic and Health Survey 2016. MethodThe 2016 Ethiopian demographic and health survey data were used to identify factors associated with institutional delivery. As the data has nested structure, a multilevel logistic regression model was used for analysis by taking a nationally representative sample of 7193 women nested within 645 clusters. ResultA significant heterogeneity was observed between clusters for institutional delivery which explains about 53.5% of the total variation. Individual-level variables: higher-level women education (AOR = 5.74; 95% CI 2.7–9.73), parity 5, and more (AOR = 0.39; 95% CI 0.32–0.49) and the number of ANC visit four and greater visit (AOR = 6.74; 95% CI 4.11–11.04) were significantly associated with institutional delivery. Community-level variables, Community media exposure (AOR = 1.80; 95% CI 1.31–2.4) and community antenatal coverage (AOR = 1.97; 95% CI 1.18–3.30) had a significant effect on institutional delivery. ConclusionThe effort to promote institutional delivery should pay special attention to multiparous and less educated women.