Soil erosion by gullies in Ethiopia is causing environmental and socioeconomic problems. A sound soil and water management plan requires accurately predicted gully erosion hotspot areas. Hence, this study develops a gully erosion susceptibility map (GESM) using frequency ratio (FR) and random forest (RF) algorithms. A total of 56 gullies were surveyed, and their extents were derived by digitizing Google Earth imagery. Literature review and a multicollinearity test resulted in 14 environmental variables for the final analysis. Model prediction potential was evaluated using the area under the curve (AUC) method. Results showed that the best prediction accuracy using the FR and RF models was obtained by using the top four most important gully predictor factors: drainage density, elevation, land use, and groundwater table. The notion that the groundwater table is one of the most important gully predictor factors in Ethiopia is a novel and significant quantifiable finding and is critical to the design of effective watershed management plans. Results from separate variable importance analyses showed land cover for Nitisols and drainage density for Vertisols as leading factors determining gully locations. Factors such as texture, stream power index, convergence index, slope length, and plan and profile curvatures were found to have little significance for gully formation in the studied catchment.