Objective This study aimed to determine the level of life satisfaction and identify associated factors among elderly people living in two cities in northwest Ethiopia. Design Community-based cross-sectional study. Setting Two cities in northwest Ethiopia (Gondar and Bahir Dar). Participants 816 elderly people age 60 years and above living in Gondar and Bahir Dar, northwest Ethiopia. Systematic random sampling was used to select study participants. Main outcome measure Level of life satisfaction. Considering the mean and SD, three levels of satisfaction appeared to suffice as the basis for analysis and discussion: 23.5-34.4 dissatisfied, 34.5-56.5 averagely satisfied and 56.6-67.5 satisfied. Multivariable ordinal regression analysis was done to control the confounders. Since the outcome variable has an ordinal category, ordinal regression analysis is appropriate. A p≤0.05 and AOR (adjusted OR) with a 95% CI were considered to determine the statistically significant variables and strength of the association. Results The mean age of the respondents was 68.2 years with an SD±7.2. The level of life satisfaction was: dissatisfied 17.2%, moderately satisfied 63.8% and well satisfied 19.0%. Overall, 45.8% (95% CI 42.2% to 49.2%) of the participants had a score equal to or above the mean. Regarding associated factors; retired current occupation (AOR=2.23, 95% CI 1.09 to 4.55), good self-rated health status (AOR=2.54, 95% CI 1.29 to 4.99), having no chronic disease (AOR=1.48, 95% CI 1.03 to 2.11), somewhat-good (AOR=2.15, 95% CI 1.12 to 4.13) and good (AOR=4.51, 95% CI 2.40 to 8.45) self-perception on ageing life, moderate functional impairment on daily living activities (AOR=5.43, 95% CI 1.81 to 16.24), high sense of coherence (AOR=3.80, 95% CI 2.04 to 7.08), house rent as a source of finance (AOR=2.60, 95% CI 1.49 to 4.52) and high perceived social support (AOR=2.13, 95% CI 1.44 to 3.16) had statistically significant association with the life satisfaction. Conclusion The life satisfaction level in our study group was lower than in some more highly developed countries. To improve the level of life satisfaction in Ethiopia, a holistic programme of nursing care for elderly people, particularly as concerns about their health and psychosocial conditions is crucial in both community and clinical settings.