Introduction: Low and middle-income countries suffer from a high burden of undernutrition. Fetal malnutrition negatively impacts a newborn's body composition, metabolism, and enzymatic processes, predisposing the newborn to malnutrition during childhood period. This study aims to assess the magnitude of fetal malnutrition and its predictors in southern Ethiopia. Methods: A facility-based cross-sectional study was conducted among 423 pairs of mother and term newborn delivered from February 1- 28, 2025, at five randomly selected public hospitals in southern Ethiopia. The Clinical Assessment of Nutrition (CAN) Score is used to assess fetal malnutrition. Logistic regression was employed to identify predictors of fetal malnutrition. Statistical significance of the association was declared at p < 0.05. Results: Among 423 newborns included in the study, 60 (14.1%) had fetal malnutrition. Newborns born to women with a placental weight of 519 grams or less had ten times higher odds of fetal malnutrition compared to their counterparts (AOR=9.795, 95% CI: 4.881-19.657). Dietary counselling during pregnancy reduced odds of fetal malnutrition by 62.3% (AOR=0.377, 95% CI: 0.162-0.877); similarly, an extra meal during pregnancy was associated with reduced odds of fetal malnutrition by 71.6% (AOR=0.284, 95% CI: 0.131-0.616). Newborns delivered from women who had a MUAC (Mid Upper Arm Circumference) >22 cm had 75.7% lower odds of fetal malnutrition (AOR=0.243, 95% CI 0.074 -0.797), whereas maternal chronic medical illness increased the odds by threefold (AOR=3.419, 95% CI: 1.269-9.153). Conclusion: There is a high magnitude of fetal malnutrition in the study area. Placental weight, dietary counselling, extra meals during pregnancy, MUAC and chronic medical illness were predictors of fetal malnutrition, signifying the need for a comprehensive approach targeting maternal nutrition during pregnancy