A cross-sectional survey was conducted on 2000 adult Ethiopians living in rural communities to determine firstly the prevalence of mental illness and secondly its association with stress and demographic variables. The Self-Reporting Questionnaire developed by WHO experts was used as the measure of mental illness. A modified version of the Holmes-Rahe Social Readjustment Scale was the measure of stress. Respondents were interviewed in their homes. Those experiencing 11 or more of the 20 neurotic symptoms and 3 or more of the 4 psychotic symptoms were considered mentally ill. Despite the use of high cut-off points for identifying potential cases, the prevalence of mental illness was 17.2%--neurotic 11.2% and psychotic 6.0%. This is higher than earlier reports for Ethiopia, but comparable to rates found in other African countries. Mental illness scores were most strongly associated with stress in that the odds of experiencing 6 or more stressful life events in the past year were 2.7 times greater for neurotics and 2.1 times greater for psychotics. In addition, neuroses and psychoses were significantly associated with a family history of mental illness and with being divorced, separated or widowed. Neurosis alone was also associated with chronic illness, females, those between the ages of 35 and 44, and illiteracy. These findings were discussed in terms of their relevance for identifying high stress groups and thus for preventing mental illness through community activities.