Genotype-by-environment interactions (GEI) are an important tool for identifying and selecting optimal plant genotypes that ensure stable yields under diverse conditions. Assessing GEI is therefore crucial for understanding genetic variation and tailoring breeding strategies to specific agro-ecological regions. The aim of this study was to evaluate the quantitative impact of GEI on the grain yield and quality of faba bean (Vicia faba L.) genotypes in the Bale region (southern Ethiopia). Twelve genotypes were evaluated using a randomized complete block design with four replications across two locations (Sinana and Agarfa) over three consecutive cropping seasons (2018–2020). Analysis of variance revealed a significant effect (P < 0.01) of genotype, environment, and GEI on grain yield, indicating that the genotypes responded differently to varying environmental conditions. Environmental factors accounted for the largest share of grain yield variation (31.84%), followed by the effects of genotype (6.77%) and GEI (2.49%), demonstrating that environmental conditions significantly shaped the production performance of the tested genotypes. Grain yield ranged from 1.94 t ha⁻¹ at Agarfa in 2018 to 3.85 t ha⁻¹ at Sinana in 2019, with an overall mean of 2.61 t ha⁻¹. AMMI (Additive Main effects and Multiplicative Interaction) analysis revealed the presence of genotype-by-environment interaction (GEI), with the first two interaction axes accounting for 79.2% of the total sum of squares for the interaction. Through stability analysis based on the AMMI Stability Value (ASV) and the Genotype Stability Index (GSI), genotypes G4, G9, G5, and G8 were identified as stable across the various environment. The genotype G2 exhibited superior grain yield performance with moderate stability and surpassed the standard checks by 19.05%. Therefore, G2 was identified as a promising candidate genotype for further verification and possible release for commercial cultivation in Southeastern Ethiopia and similar agro-ecological zones.