Khat (Catha edulis Forsk) chewing habit is being a hot issue of discussion nation wide. This habit is spreading at an alarming rate among the young generation, especially in high schools and higher institutions, where there are intensive academic activities. Students in colleges and universities commonly use khat, hoping that it improves their academic performance. The main aim of this study was to determine the prevalence and socio-demographic correlates of khat chewing and its impact on academic performance. A cross sectional study was conducted, in January 2002, on a representative sample of 500 students selected by systematic random sampling technique from a total of 2073 students who stayed in the university at least two years. Out of these, 76.91% were males, 59.53% were Orthodox believers, 70.98% were between 16 and 25 years old, and 49.15% were Amhara in their ethnic background. The current prevalence of khat chewing was estimated to be 24.79%. In this study, 27% of male students, 46.74% of Muslim students and 31.30% of Oromo students were found to be khat chewers. Khat chewing has a significant association with high income (p < 0.001), with smoking habit (p < 0.05) and with coffee drinking habit (p < 0.001). The presence of khat chewers in the family and among friends have also a positive association with khat chewing habit. The mean cummulative grade point average (CGPA) of non-chewers was found to be significantly higher (p < 0.001) than that of chewers. In conclusion, the present study depicts that gender, age, religion, ethnicity and income have a positive association with the habit of khat chewing. The t-test value showed a significant difference between the mean CGPA of Khat chewers and non chewers in favor of the later. This indicates that Khat chewing may not help to improve academic performance.