From 2006 to 2011, a cohort study was conducted among 1000 children resident in urban and rural settings of Uganda to ascertain and compare the response to antiretroviral therapy (ART) among urban versus rural children and the factors associated with this response. Clinical, immunological, and virological parameters were ascertained at baseline and weeks 24, 48, 96, and 144 after ART initiation. Adherence to ART was assessed at enrollment by self-report (SR) and pill counts (PC). Overall, 499/948 (52.6%) children were resident in rural areas, 504/948 (53.1%) were male, and their mean age was 11.9±4.4 years (urban children) and 11.4±4.1 years (rural children). The urban children were more likely to switch to second-line ART at a rate of 39.9 per 1000 person-years (95% CI: 28.2-56.4) versus 14.9 per 1000 person-years (95% CI: 8.7-25.7), p=0.0038, develop any new WHO 3/4 events at 127/414 (30.7%) versus 108/466 (23.2%), p=0.012, and have a higher cumulative incidence of hospitalization of 54/449 (12.0%) versus 32/499 (6.4%), p=0.003, when compared to rural children. No differences were observed in mean changes in weight, height, CD4 count and percentage, and hemoglobin and viral load between urban and rural children. Adherence of ≥95% was observed in 88.2% of urban versus 91.3% of rural children by SR (p=0.130), and in 78.8% of urban versus 88.8% of rural children by PC (p<0.0001). In this study rural children had more favorable clinical outcomes and were more likely to adhere optimally to ART than urban children.