The Anwar Mosque, located in the busy central Merkato district, is one of the main places of worship for Muslims in the capital.
"So far we have no idea who is responsible for this incident," communication minister Getachew Reda told AFP.
"17 people were injured including some seriously injured, but no fatalities," he added.
Violent attacks are very rare in Ethiopia with the government and security forces maintaining a tight grip, however tensions between the Christian majority and Muslim minority do exist and armed rebel groups continue to operate in remote parts of the vast country.