Ethiopia is one of the few countries where different religions respect each other. Orthodox Christianity and Islam, the two main religions in the country, have coexisted since Mohammed’s time. The first believers in Islam were converted while the Prophet Mohammed was alive and the first mosque was built in the eighth century. However, culturally the Orthodox Church has dominated the political, social, and cultural life in the highlands, as it has been the official religion of the imperial court and hence also the feudal establishment until Haile Selassie was deposed in 1974. Since then religion and state have been separated.

Ethiopia's Orthodox Christians are among the oldest Christian communities in the world. Their hymns and prayers have been preserved and passed down over the ages. Lalibela is the capital of Ethiopia's Christians, their "holy place," their "wonder of the world." And nowhere else is this clearer than at Bet Gyiorgis, the Church of St. George. The monumental structure - chiselled out of the rocks on the town's western fringes - is some 800 years old. Around 40% of Ethiopians are Orthodox Christians. Their faith and traditions date back more than 1,600 years. According to the legend, their church was established as the unintended consequence of a kidnapping: Two Christians named Frumentios and Aidesios - both residents of Tyre - were accosted on the Red Sea and abducted to Aksum, Ethiopia's capital at the time. Being educated people, they taught the royals children and imparted the fundamentals of their Christian faith. The Ethiopian Orthodox Church claims to possess the Ark of the Covenant, or Tabot, in Axum, not far from the border with Eritrea. The object is currently kept under guard in a treasury near the Church of Our Lady Mary of Zion and is used occasionally in ritual processions. Replicas of the Axum tabot are kept in every Ethiopian church, each with its own dedication to a particular saint. The most popular of these include Mary, George and Michael. The Kebra Negast, composed to legitimise the new dynasty ruling Ethiopia following its establishment in 1270, narrates how the real Ark of the Covenant was brought to Ethiopia by Emperor Menelik I with divine assistance, while a forgery was left in the Temple in Jerusalem. Although the Kebra Negast is the best-known account of this belief, the belief predates the document. Abu Salih the Armenian, writing in the last quarter of the twelfth century, makes one early reference to this belief that they possessed the Ark. "The Abyssinians possess also the Ark of the Covenant", he wrote, and, after a description of the object, describes how the liturgy is celebrated upon the Ark four times a year, "on the feast of the great nativity, on the feast of the glorious Baptism, on the feast of the holy Resurrection, and on the feast of the illuminating Cross."

Islam, which arrived in Ethiopia around the year 615, is the second-most widely practiced religion in Ethiopia after Christianity, with over 35% of Ethiopians. Islam is the religion of the overwhelming majority of the Somali, Afar, Argobba and Harari, and the largest group of the Oromo people of Ethiopia. Muslims arrived in the Axumite Empire as immigrants from Mecca, persecuted by the ruling Quraysh tribe. They were received by the ruler of Axum, whom Arabic tradition has named Ashama ibn Abjar, and he settled them in Negash. The principal center of Islamic culture, learning, and propagation has been Harar in Eastern Ethiopia. The Prophet himself instructed his followers who came to the Axumite Empire, to respect and protect Axum as well as live in peace with the native Christians. While the city of Medina, north of Mecca, ultimately became the new home of most of the exiles from Mecca. Islam later developed more in the coastal regions of the southern horn of Africa, particularly among the Somali. The north and north eastern expansion of the Oromo, who practiced mainstream traditional Waaqa, affected the growth of Islam in its early days.

The name Falasha is Amharic and stands for "exiles" or "landless ones". Falashas (Jews) themselves refer to their sect as Beta Esrael ("House of Israel"). The Falashas retain animal sacrifice. They celebrate scriptural and nonscriptural feast days, although the latter are not the same as those celebrated by other Jewish groups. The Sabbath regulations of the Falashas are stringent. They observe biblical dietary laws, but not the post biblical rabbinic regulations concerning distinctions between meat and dairy foods. The center of Falasha religious life is the masjid, or synagogue and the chief functionary in each village has the high priest. Falasha monks live alone or in monasteries, isolated from other Falashas. The Falashas live either in separate villages or in separate quarters in Christian or Muslim towns, in the region north of Lake Tana. They are skilled in agriculture, masonry, pottery, ironworking, and weaving. Under Haile Selassie I, a few Falashas rose to positions of prominence in education and government, but reports of persecution followed the emperor's ouster in 1974.

More than 12,000 Falashas were airlifted to Israel in late 1984 and early 1985, when the Ethiopian government halted the program. Nearly all of the more than 14,000 Falashas remaining in Ethiopia were evacuated by the Israeli government in May 1991. The Falashas themselves say that they are direct descendants from the family of Abraham, the first Jew.