Although hepatitis B virus (HBV) infection is hyperendemic in Ethiopia and constitutes a major public health problem, little is known about its genetic diversity, genotypes, and circulation. The aim of this study was to determine the molecular epidemiology and genetic diversity of HBV in Ethiopia, using 391 serum samples collected from HBsAg-positive blood donors living in five different geographic regions. The HBV S/pol gene was amplified, sequenced, and HBV genotypes, subgenotypes, serotypes, and major hydrophilic region (MHR) variants were determined. Phylogenetic analysis of 371 samples (95%) revealed the distribution of genotypes A (78%) and D (22%) in Ethiopia. Further phylogenetic analysis identified one subgenotype (A1) within genotype A, and 4 subgenotypes within genotype D (D1; 1.3%, D2; 55%, D4; 2.5%, and D6; 8.8%). Importantly, 24 isolates (30%) of genotype D formed a novel phylogenetic cluster, distinct from any known D subgenotypes, and two A/D recombinants. Analysis of predicted amino-acid sequences within the HBsAg revealed four serotypes: adw2 (79%), ayw1 (3.1%), ayw2 (7.8%), and ayw3 (11.6%). Subsequent examination of sequences showed that 51 HBV isolates (14%) had mutations in the MHR and 8 isolates (2.2%) in the reverse transcriptase known to confer antiviral resistance. This study provides the first description of HBV genetic diversity in Ethiopia with a predominance of subgenotypes A1 and D2, and also identified HBV isolates that could represent a novel subgenotype. Furthermore, a significant prevalence of HBsAg variants in Ethiopian population is revealed.