This study examines the correlation between Ethiopian Sign Language (EthSL) fluency and Amharic literacy skills among deaf students in Ethiopia, addressing critical gaps in the understanding of linguistic interdependence in a multilingual context. Despite the constitutional recognition of EthSL in 2008, deaf students face persistent literacy disparities, with only 23% meeting national standards. Employing a mixed-methods comparative design, the study assessed 76 deaf students (80.3% with profound hearing loss) from four schools. EthSL proficiency was evaluated by native signers (inter-rater reliability: r = .94–.95), and Amharic literacy was measured using standardized reading comprehension tests. Results revealed a strong positive correlation between EthSL proficiency and Amharic reading comprehension (r = .87, p < .001), with high-proficiency students scoring 90.42% compared to 34.50% among low-proficiency peers (d = 5.92). High-proficiency students significantly outperformed their low-proficiency peers across PSLCE subjects (d = 0.56–0.69), with EthSL proficiency uniquely explaining 37% of the variance in academic achievement. Special schools demonstrated higher proportions of high-proficiency students (61.1%) than inclusive settings (36.0%) and significant vocabulary advantages (d = 0.51), but no comprehension differences were found. Age of EthSL acquisition significantly predicted all literacy outcomes after controlling for current age and school type (β = -.25 to -.31, p < .05), with earlier exposure conferring lasting advantages. Qualitative data revealed systemic barriers, including limited teacher training and delayed language access. These findings support the linguistic interdependence and critical period hypotheses, demonstrating that EthSL proficiency is a foundational prerequisite for Amharic literacy acquisition. The results mandate policy reforms prioritizing early hearing screening, family centered EthSL intervention, mandatory teacher proficiency standards, and equitable resource allocation to ensure deaf learners access language-rich environments during critical developmental windows.