BackgroundCompassion is the first ethical principle of health care to provide high- quality care that influences patient satisfaction and treatment outcome. However, there is limited data on the level of compassionate mental health care practice in low-resource countries like Ethiopia.ObjectivesThis study aimed to assess the level of perceived compassionate care and associated factors among patients with mental illness at Tibebe Ghion specialized and Felege Hiwot comprehensive specialized hospital, North West, Ethiopia, 2022.MethodsAn institutional-based cross-sectional study design was conducted from June 18 to July 16, 2022, at Tibebe Ghion Specialized and Felege Hiwot Comprehensive Specialized Hospital. A systematic random sampling technique was used. The level of perceived compassionate care was assessed by the validated 12-item Schwartz Center Compassionate Care Scale among 423 patients with mental illness. Epicollect-5 was used to collect data, which was then exported to the Statistical Product and Service solution version 25 for analysis. Variables with aP-value < 0.05, and 95% confidence interval (CI) were used to declare significant variables at the multivariate logistic regression analysis.ResultThe level of perceived good compassionate care was 47.5% (95% CI 42.6%-52.4%). Factors including urban residence (AOR = 1.90; 95%CI 1.08–3.36), duration of illness < 24 months (AOR = 2.68; 95% CI 1.27–5.65), strong social support (AOR = 4.43; 95%CI 2.16–9.10), shared decision making (AOR = 3.93; 95% CI 2.27–6.81), low perceived stigma(AOR = 2.97; 95% CI 1.54–5.72) and low patient anticipated stigma (AOR = 2.92; 95% CI 1.56–5.48) were positively associated with good compassionate care.Conclusion and recommendationLess than half of the patients had received good compassionate care. Compassionate mental health care needs public health attention. Policymakers should emphasize on compassionate care continuity by including it in the health care curriculum and design appropriate policies to strengthen compassionate care.Supplementary InformationThe online version contains supplementary material available at 10.1186/s12913-023-09665-4.