Acute renal failure (ARF) is a common condition seen in neonatal intensive care units. It is broadly classified into prerenal, intrinsic renal and post renal failure. There is no consensus on the definition of neonatal ARF. Of utmost importance is to differentiate prerenal from intrinsic renal failure. The most common causes of neonatal ARF are hypovolemia, hypotension and, hypoxia. Among several indices that are available for differentiating prerenal failure from intrinsic renal failure, fractional excretion of sodium is the preferred index. Diagnostic fluid challenge with or without frusemide is a bed side method for differentiating prerenal failure from intrinsic renal failure. Babies with ARF have to be monitored for several metabolic derangements like hyponatremia, hyperkalemia, hypocalcemia, and acidosis and have to be managed accordingly. Fluid balance should be precise in order to avoid fluid overload. It is difficult to provide adequate calories due to fluid restriction. Dialysis has to be instituted to preempt complications. Peritoneal dialysis is the easiest and safest modality. These babies need long term follow up as they are prone for long term complications.