BACKGROUND: A third of the 2·5 billion people worldwide without access to improved sanitation live in India, as do two-thirds of the 1·1 billion practising open defecation and a quarter of the 1·5 million who die annually from diarrhoeal diseases. We aimed to assess the effectiveness of a rural sanitation intervention, within the context of the Government of India's Total Sanitation Campaign, to prevent diarrhoea, soil-transmitted helminth infection, and child malnutrition. METHODS: We did a cluster-randomised controlled trial between May 20, 2010, and Dec 22, 2013, in 100 rural villages in Odisha, India. Households within villages were eligible if they had a child younger than 4 years or a pregnant woman. Villages were randomly assigned (1:1), with a computer-generated sequence, to undergo latrine promotion and construction or to receive no intervention (control). Randomisation was stratified by administrative block to ensure an equal number of intervention and control villages in each block. Masking of participants was not possible because of the nature of the intervention. However, households were not told explicitly that the purpose of enrolment was to study the effect of a trial intervention, and the surveillance team was different from the intervention team. The primary endpoint was 7-day prevalence of reported diarrhoea in children younger than 5 years. We did intention-to-treat and per-protocol analyses. This trial is registered with ClinicalTrials.gov, number NCT01214785. FINDINGS: We randomly assigned 50 villages to the intervention group and 50 villages to the control group. There were 4586 households (24,969 individuals) in intervention villages and 4894 households (25,982 individuals) in control villages. The intervention increased mean village-level latrine coverage from 9% of households to 63%, compared with an increase from 8% to 12% in control villages. Health surveillance data were obtained from 1437 households with children younger than 5 years in the intervention group (1919 children younger than 5 years), and from 1465 households (1916 children younger than 5 years) in the control group. 7-day prevalence of reported diarrhoea in children younger than 5 years was 8·8% in the intervention group and 9·1% in the control group (period prevalence ratio 0·97, 95% CI 0·83-1·12). 162 participants died in the intervention group (11 children younger than 5 years) and 151 died in the control group (13 children younger than 5 years). INTERPRETATION: Increased latrine coverage is generally believed to be effective for reducing exposure to faecal pathogens and preventing disease; however, our results show that this outcome cannot be assumed. As efforts to improve sanitation are being undertaken worldwide, approaches should not only meet international coverage targets, but should also be implemented in a way that achieves uptake, reduces exposure, and delivers genuine health gains. FUNDING: Bill & Melinda Gates Foundation, International Initiative for Impact Evaluation (3ie), and Department for International Development-backed SHARE Research Consortium at the London School of Hygiene & Tropical Medicine.