The paper describes a cross-sectional household survey conducted in randomly-selected villages in rural Ethiopia to assess strategies of households for coping with financial and time costs of illness. Results of the survey showed that the average monthly household health expenditure was 32.87 Birr (about US$ 4.1 [US$ 1=8 Birr at the time of study]). In addition, the average time lost due to illness was 9.23 days for the sick and 7.38 days for their caretakers. Monetary price was a significant (p<0.05) deterrent from visiting health facilities among households with no land or house, the divorced or widowed, and those with annual income less than 500 Birr (US$ 62.5). The main strategies to cope with the financial costs of illness were waiver privileges, selling household assets, and using savings. Division of labour among household members was used for compensating for the loss of working time due to sickness. The findings of the study indicate that financial and time costs of illness seem to significantly contribute to the impoverishment of rural households.