Abstract Background T.gondii is a global zoonotic disease and is considered as the most neglected tropical disease in sub-Saharan countries. The exact seroepidemiological distribution and risk factors for the infection of food animals and humans in Ethiopia was less studied although, such studies are important. The objective of the current study was to determine the seroprevalence and potential risk factors of T. gondii infection in sheep and goats in Southwestern Ethiopia. Methods Cross sectional study was conducted from November 2014 to March 2015 in South west Ethiopia in four selected districts of Jimma zone (n = 368). Slide agglutination test (Toxo-latex) was used to detect anti-T.gondii antibodies. Logistic regression was used to determine potential risk factors. Results An overall seroprevalence of 57.60% (212/368; 95% CI: 52.55–62.6) was detected. 58.18% (148/252; 95% CI: 52.75–64.88) and 55.18% (64/116; 95% CI: 46.13–64.23) sero prevalence was found in sheep and goats respectively. Multivariable logistic regression analysis showed that the risk of T. gondii infection was significantly higher in adult sheep and goats [(sheep: Odds Ratio (OR) = 2.5, confidence interval (CI): 1.19–5.23; p = 0.015), (goats: OR = 3.9, confidence interval (CI):1.64–9.41: p = 0.002)] than in young sheep and goats, in female [(sheep: OR = 1.93, CI: 1.11–3.36, p = 0.018, (goats: OR = 2.9, CI: 121–6.93, p = 0.002)] than in males sheep and goats, in Highland [(sheep: OR = 4.57, CI: 1.75–12.66, P = 0.000, (goats: OR = 4.4, CI: 1.75–13.66, p = 0.004)] than sheep and goats from lowland. Conclusion This study indicates that seroprevalence of latent toxoplasmosis in small ruminants is high, therefore, it is decidedly indispensable to minimize risk factors exposing to the infection like consumption of raw meat as source of infection for humans.