Information on the impact of insecticide (permethrin)-treated bed nets (ITNs) from randomized controlled trials in areas of intense perennial malaria transmission is limited. As part of a large-scale, community-based, group-randomized controlled trial of the effect of ITNs on childhood mortality in a holoendemic area in western Kenya, we conducted three cross-sectional surveys in 60 villages to assess the impact of ITNs on morbidity in 1,890 children less than three years old. Children in ITN and control villages were comparable pre-intervention, but after the introduction of ITNs, children in intervention villages were less likely to have recently experienced illness requiring treatment (protective efficacy [95% confidence intervals] = 15% [1-26%]), have an enlarged spleen (32% [20-43%]), be parasitemic (19% [11-27%]), have clinical malaria (44% [6-66%]), have moderately severe anemia (hemoglobin level < 7.0 g/dL; 39% [18-54%]), or have a pruritic body rash, presumably from reduced nuisance insect bites (38% [24-50%]). Use of ITNs was also associated with significantly higher mean weight-for-age Z-scores and mid-upper arm circumferences. There was no evidence, however, that ITNs reduced the risk of helminth infections, diarrhea, or upper or lower respiratory tract infections. The ITNs substantially reduced malaria-associated morbidity and improved weight gain in young children in this area of intense perennial malaria transmission.