Introduction: Multiple factors may contribute to sleep disruption in type 2 diabetic individuals. Sleep disruption in type 2 diabetic individuals frequently associated with long-term damage, dysfunction, and failure of different organs. Nevertheless, literatures regarding the prevalence of sleep quality among individuals with type 2 diabetes are scanty and the association between type 2 diabetes and sleep quality in Ethiopia is not well established. Objective: This study aimed to assess and compare the prevalence of sleep quality among type 2 diabetic and Non-diabetic individuals and identify its associated factors in Bahir Dar governmental hospitals, North West, Ethiopia, 2021. Methods: Institution based Comparative cross-sectional study was employed among 292 individuals with type 2 diabetic and 291 Non-diabetic individuals in Bahir Dar governmental hospitals from March 01- to April-01. Two-stage cluster sampling method was employed to select participants. Data was entered into EPI-data version 3.1 and exported to SPSS version 20. For analysis, descriptive and summary statistics were used to determine the prevalence and percentage of variables. Chi-square were also used for comparison. Multivariable logistic regression analysis was employed to determine the associated factors of poor sleep quality. Result: The prevalence of poor sleep was 50.7% (95% CI; 44.9-56.2) and 31.8% (95% CI 26.5-37.5) among individuals with type 2 diabetic and Non-diabetic individuals respectively. Among the overall participants being type 2 diabetic patient was found significantly associated with poor sleep quality as compared to non-diabetic individuals (AOR=1.89; 95% CI; 1.19-2.87).Duration of diabetes >10 years (AOR=3.0; 95% CI: 1.28–7.04), poor glycaemic control (AOR = 3.24; 95% CI: 1.46–6.38), depression (AOR=2.6; 95% CI: 1.298–5.54), low physical activity (AOR= 4.13; 95% CI: 2.01 – 8.57) and poor social support (AOR=2.25; 95% CI: 1.94-5.41) were factors significantly associated with poor sleep quality among individuals with type 2 diabetes. Among non-diabetic individuals poor social support (AOR=2.835; 95% CI: 2.83-13.65), low physical activity (AOR=3.17; 95% CI: 1.59–6.29), depression (AOR= 2.26; 95% CI: 1.11–4.60) were factor associated with poor sleep quality. Conclusion and recommendation: In this study, the prevalence of poor sleep among individuals with type 2 diabetes was higher than Non-diabetic individuals. For individuals with type 2 diabetes blood glucose monitoring and control is necessary to improve their sleep quality. In addition, for both study groups, regular physical exercise is also needed to improve overall sleep quality. Keyword; Sleep quality, Type 2 DM, Non-DM, Ethiopia.