The internet, being an integral part of human life, is widely used by university students for different purposes including academic related works, networking, entertainment and staying up to date with latest information. Nevertheless, making use of the internet excessively can bring about negative consequences in the lives of students. The present study sought to determine the relationship between internet addiction and psychological wellbeing among main campus students at Addis Ababa University. Employing a cross sectional research design, quantitative data from 304 university students (male = 156, female = 148) with a mean age of 20.76 years (SD = 1.42) were collected using demographic questionnaire (6 items), Young’s Internet Addiction Test (20 items) and Ryff’s Psychological Wellbeing scale (18 items). Descriptive statistical methods including frequency, percentage, mean, standard deviation, Pearson product moment correlation and inferential statistical methods such as Independent Samples T test, One Way ANOVA, and multiple regression analysis were used to analyze the data. The study found that 28.2 % of the participants were found to be addicted to the internet. Students who use the internet for entertainment purpose are more prone to internet addiction compared to students who use the internet for academic purposes. A higher level of internet addiction was observed among students who used the internet for more than six hours per day compared to those who used the internet for two hours and below. Majority (90.1%) of the students’ psychological wellbeing status was found to be high. Compared to second year students, first and third year students had a relatively higher status of psychological wellbeing. Students who use the internet for entertainment purposes reported a lower status of psychological wellbeing compared to students who use the internet for academic purposes. Similarly, spending more than six hours online per day was also associated with lower status of psychological wellbeing. Bivariate correlation showed that internet addiction and psychological wellbeing had a significant and negative relationship. Furthermore, multiple regression analysis revealed that psychological wellbeing was significantly and negatively associated with internet addiction, after adjusting for potential confounding factors. Based on the findings, it is safe to conclude that internet addiction is a risk factor for lower psychological wellbeing.