Hospitality is an umbrella term covering a variety of businesses, including restaurants, hotels, resorts and casinos. In a highly competitive hotel industry, individual hoteliers must find ways to make their products and services stand out among the others. The main aim of this study was to investigate service quality and customers satisfactions in hospitality industry: the case of selected hotels in Jimma town in Ethiopia, by applying a modified version of the LODGING QUALITY INDEX model. In line with the objective, descriptive and explorative research methods were employed to analyze the data collected through questionnaire from a sample of 172 respondents and correlation and regression analysis were used to see the cause and effect relationships. The key finding showed that there was a negative gap between actual service and expected service in all dimensions of lodging quality index and significant and positive relationships of five service quality dimensions and customers satisfactions.