The use or misuse of addictive substances like khat has become widespread among the youths especially in countries where the substance is produced and/or consumed. In this paper, we examine whether khat use has any impact on the academic achievement of university students with particular reference to undergraduates in Jimma University, Ethiopia. Using data gathered from students between May to June 2011, the two-limit tobit model was employed to estimate the effect of khat use on students' grade point average (GPA), a measure of students' academic performance. The results reveal that khat use has a negative influence on students' academic performance at the university. On the other hand, however, students' academic performance at the university is positively related to their past performance (university entrance examination score) as well as parental education (household head) among others. Awareness creation on the negative impacts of the use of addictive substances like khat should, therefore, be carried out by the university management, local governments at various levels and policy makers at large. Interventions that target preparatory level education would, therefore, have higher returns in terms of human capital development.