In a prospective study of 44 neonates (33 outborn and 11 inborn) with pneumonia, the bacteriology of pneumonia was determined by blood culture and serum counterimmunoelectrophoresis (CIEP). Twenty-nine babies also underwent lung aspiration. The lung aspirate was subjected to bacterial culture and CIEP. CIEP was done to detect the bacterial antigens of Streptococcus pneumoniae and Haemophilus influenzae. Absence of tachypnoea, found more commonly in low birth weight babies, was a poor prognostic sign. Low birth weight babies had a significantly higher mortality than babies with normal birth weight. Altogether, a bacterial etiology of neonatal pneumonia could be established in 25 cases (56.7%). In 10 babies, Strep. pneumoniae antigen was detected in serum and/or lung aspirate. Micro-organisms were cultured from blood and/or lung aspirate from 17 babies. Eleven babies (25%) grew Gram negative bacteria. The common bacteria identified in decreasing order of frequency were Strep. pneumoniae, Klebsiella pneumoniae, Staphylococcus epidermidis, Acinatobacter lowfii, Staph. aureus, Pseudoamonas aeruginosa etc. All the Gram negative bacteria as well as staphylococci were sensitive to amikacin while only 23.5 per cent was sensitive to gentamicin. All staphylococci isolated were sensitive to methicillin.