Management of severely malnourished children with associated complications relies on hospital-based treatment. Implementation of a standardized protocol at the Dhaka Hospital, ICDDR,B reduced case fatality approximately 50%. We developed and prospectively evaluated a day-care clinic approach that provided antibiotics, micronutrients and feeding during the day with continued care by parents at home at night as an alternative to hospitalization. Severely malnourished children aged 6-23 months denied admission to hospital were enrolled at Radda Clinic, Dhaka and received protocolized management with antibiotics, micronutrients and milk-based diet from 8:00 am to 5:00 pm each day, while mothers were educated on continuation of care at home. They were transitioned to the day-care nutrition rehabilitation (NR) unit of Radda Clinic following resolution of acute illness, received NR diet (Khichuri, halwa and milk-based) daily until children attained 80% weight-for-length. From February 2001 to November 2003, 264 children were enrolled; 52% were boys and 78%, 21% and 1% had marasmus, marasmus-kwashiorkor and kwashiorkor, respectively. Only 13% had severe malnutrition alone while 35% had pneumonia, 35% had diarrhea and 17% had both pneumonia and diarrhea. The mean (SD) duration of acute and NR phases were 8 (4) and 14 (13) days, respectively. Children gained weight [mean (SD) g/kg day] more rapidly during acute 10 (7) than NR phase 6 (5). Successful management was possible in 82% (95% CI 77-86%) children, 12% discontinued treatment and 6% referred to hospitals. Only one child died during NR phase. Severely malnourished children can be successfully managed at existing day-care clinics using a protocolized approach.