Introduction Early detection of the unrecognized diabetes mellitus (DM) and its risk factors in the community is crucial to minimizing the burden of DM and associated complications. Hence, this study aimed to assess unrecognized DM and its relationship with behavioral characteristics, physical characteristics, and lipid profile among adults in Jimma Town, Southwest Ethiopia. Methods A community-based cross-sectional study was conducted on 915 adults in Jimma Town from June 17 to July 27, 2019. Physical measurements, lipid profile, and blood sugar levels were measured. The collected data were entered and analyzed using Epi Data 3.1 and SPSS version 21, respectively. Multivariable logistic regression was fitted to assess predictors of unrecognized DM where adjusted odds ratio (AOR) with its corresponding 95% confidence interval (CI) was used to assess the strength of association at P-value ≤05. Results The prevalence of unrecognized DM and impaired glucose metabolism (pre-diabetes) were 3.1% (95% CI; 2.0–4.4) and 14.8% (95% CI; 12.5–17.2), respectively. The risk of unrecognized DM was higher among male participants (AOR = 2.94, 95% CI: 1.19, 7.29), age group of 35 years and above (AOR = 3.45, 95% CI: 1.16, 10.27), and high waist circumference (AOR = 4.21, 95% CI: 1.72, 10.33). On the other hand, participants who perform sufficient physical activity (AOR = 0.14, 95% CI: 0.03, 0.58) had low risk of undetected DM. Conclusion The prevalence of unrecognized diabetes mellitus was relatively high. Male sex, advanced age, physical inactivity, and high waist circumference were found to be predictors of unrecognized DM. Thus, awareness needs to be created among the community to practice regular physical activity and maintaining normal body weight. Additionally, screening of DM should be promoted for early detection, prevention, and treatment.