The main purpose of this study was to investigate preschool teachers’ knowledge, attitude, practice and challenges regarding play based instruction at selected preschools of Bahir Dar city administration. In order to achieve the central objectives, a mixed research approach; sequential explanatory design was employed. Data were collected from 10 purposively selected preschools with a total of 132 participants; 121 preschool teachers, 10 school principals and one City Administration ECCE focal person. Preschool teachers were selected through simple random sampling where as school principals and ECCE focal person were selected comprehensively. Accordingly, to obtain relevant data the researcher utilized self developed questionnaire consisted of a total of 47 closed –ended items for preschool teachers as the main data gathering instrument whereas five semi structured interview questions, observation and document review were utilized to enrich and triangulate the data obtained through questionnaires. Consequently, the collected quantitative data were analyzed in SPSS software version 23 by using descriptive, correlational and regression analysis and the qualitative data were analyzed using thematic narrative analysis. The results of the present study showed that preschool teachers have moderate knowledge and fair practice while they have good attitude towards play based instruction. This study also depicted that knowledge was negatively correlated with attitude, practice and play based instruction whereas attitude and practice were positively correlated with play based instruction. Moreover, about 36.5 % variation of play based instruction was explained by the variation of knowledge, attitude, practice, experience, educational level and training type of the participants. The current study also explained that Preschool teachers perform multidimensional and complex roles while using play as a means of instruction in and out of the classroom but they encountered different challenges in implementation such as competency, structural, attitudinal, conceptual and resource challenges. In conclusion, the study revealed that the implementation of play based instruction can be predicted by the associated factors of preschool teachers’ KAP along with their demographic variables. Finally, it is recommended that the city administration in collaboration with different pertinent stakeholders shall work in a coordinated manner to provide stimulation programs for preschool teachers so as to enhance their capacity for effective implementation of play based instruction