Hawassa Textile Factory discharges virtually treated effluent into the nearby receiving environment. A study was carried out to assess the physicochemical characteristics and heavy metal levels of effluent released from biological treatment lagoon of the Factory. Heavy metals concentrations in sediment and macrophyte of the nearby stream to which the textile effluent is directed was also measured. Results indicated that some physico-chemical parameters such as pH, PO4, conductivity and TDS of the waste water from the two sampling sites were above provisional discharge limits set at national and/or international levels. The concentration of almost all detected heavy metals in samples analyzed from both sites generally followed the order: sediment > macrophytes > flowing waste water. The heavy metals levels detected in sediment samples from both sites followed the order: Mn > Zn > Cu > Cr > Pb > Cd. The mean concentrations of heavy metals in macrophytes followed the same order as in sediment while the sequence in waste water followed the order: Cu > Mn > Zn > Cr. However, Pb and Cd were below detection limit in both macrophytes and waste water samples. Even though the concentrations of heavy metals in samples analyzed were below acceptable ranges of the provisional discharge limits, their accumulation over time and the potential threat on environment health and disruption of ecological integrity was overemphasized. This study suggests quick intervention and closes monitoring to arrest and solve the growing environmental pollution and associated problems in the area.