US ambassador Aurelia Brazeal signed the deal which wipes out all the debt owed to the US up to March 2004, including arrears and servicing.
The deal comes after Nestle " the world's largest coffee company - agreed to forgo US $6 million it said it was owed by Ethiopia.
"Along with several other donor countries, the US government is providing 100 percent debt forgiveness," a US embassy statement said.
"The United States is pleased to reach this agreement and looks forward to continued positive relations with the Government of Ethiopia in this, the 100th year of Ethiopian-American relations."
The money saved from the debt write-off is to be channelled towards the country's newly launched Poverty Reduction Strategy.
Ethiopia also faces huge compensation packages by companies around the world after dozens of foreign companies were nationalised under the former Ethiopian ruler Mengistu Hailemariam.
Nestle was one of the companies claiming compensation, but performed a U-turn after criticism over the payment whilst the country faced a severe drought.
Meanwhile, Ethiopia has been awarded US $27 million to fight tuberculosis from the Global Fund to Fight AIDS, TB and Malaria, whose main financial backer is computer billionaire Bill Gates.
"TB is a killer unless you get the right treatment at the right time," Dr Omar Ahmed Omar from the Ethiopian health ministry told IRIN. He said the money received from the Fund was vital to help tackle the crisis.
Dr Omar pointed out that currently, two thirds of those who contract the disease die within two years. He blamed the prevalence of the disease on widespread poverty in Ethiopia.
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