Abstract Background Stigma is significantly impacted by cultural and contextual value systems. People with mental health conditions frequently have to deal with the condition itself and the associated stigma and discrimination. Contextual understanding is essential to design measures and interventions. Objective This study aimed to explore the experiences and perceptions of people with mental health conditions, their families and key stakeholders. Method A qualitative method used to understand mental health-related stigma and its local contexts. Sixteen participants, including service users, caregivers, service providers and health service administrators, were interviewed. Result People with mental health conditions and their caregivers experienced various forms of stigmatization which is linked to attributions about the causality of the illness, overt manifestations of mental health condition leading to easy identification and functional impairments that adversely affect participation. Social contact, lived experiences sharing and training of service providers are relevant intervention strategy to address stigma. Implication Stigma and exclusion are prominent in the experiences of people with mental health conditions and their caregivers in this rural Ethiopian setting. Measurement of stigma and the development of interventions should consider how stigma is socially constructed. Anti-stigma interventions need to be implemented alongside expanded local access to mental healthcare.