Hospital acquired pneumonia (HAP) is common and often associated with high mortality in children aged five or less. We sought to evaluate the risk factors and outcome of HAP in such children. We compared demographic, clinical, and laboratory characteristics in children n = 281) and twice as many randomly selected children without HAP were constituted as controls (n = 562). HAP was defined as a child developing a new episode of pneumonia both clinically and radiologically after at least 48 h of hospitalization. A total of 4101 children were treated during the study period. The mortality was significantly higher among the cases than the controls (8% vs. 4%, p = 0.014). In multivariate logistic regression analysis, after adjusting for potential confounders, it was found that persistent diarrhea (95% CI = 1.32–5.79; p = 0.007), severe acute malnutrition (95% CI = 1.46–3.27; p p = 0.013), and prolonged hospitalization of >5 days (95% CI = 3.01–8.02; p < 0.001) were identified as independent risk factors for HAP. Early identification of these risk factors and their prompt management may help to reduce HAP-related fatal consequences, especially in resource limited settings.