Background: The liver is an insulin-sensitive organ. Insulin resistance is recognized as a pathological factor in the development of liver function impairment and in Non-Alcoholic Fatty Liver Disease (NAFLD). Studies on liver function abnormalities in type 2 diabetic patients in Ethiopia are lacking. In this study we assess liver function tests in patients with type 2 diabetes mellitus and we examine factors associated with these biochemical changes. Methods: A cross-sectional study was conducted on type 2 diabetic patients. 0ut of 100 randomly selected diabetic patients, 80 individuals fulfilled the criteria set up for inclusion, while 20 were excluded. Analysis was carried out to compare liver function tests and lipid profiles of the patients with 60 non-diabetic control individuals. Results: Mean values of liver function tests (ALT, AST, ALP, TP, Bilirubin) and lipid profiles (TC, LDL, HDL, TAG) were significantly higher in diabetic patients compared with the non-diabetic controls (P< 0.05). In contrast, total protein and high density lipoprotein concentrations in diabetic patients were lower compared with non-diabetic control group (P< 0.01). Overall, 22 patients (25%) had at least one or more abnormal liver function tests and lipid profiles. 39 patients (48.75%), 62 patients (77.5%), 47 patients (58.75%), 52(65%) patients had abnormal total serum Cholesterol, LDL, TAG, and HDL levels, respectively. The liver function and lipid profile tests among different anti diabetic on taking groups of the study patients were not statically significant at p value < 0.05. Conclusion: Elevated parameters were greater among persons with type2 diabetic patients. There is less association between liver function impairments with the anti diabetic drugs the patients on taking.