BACKGROUND: Social inequality in child survival hampers the achievement of Millennium Development Goal 4 (MDG4). Monitoring under-five mortality in different social strata may contribute to public health policies that strive to reduce social inequalities. This population-based study examines the trends, causes, and social inequality of mortality before the age of five years in rural and urban areas in Nicaragua. METHODS: The study was conducted in one rural (Cuatro Santos) and one urban/rural area (León) based on data from Health and Demographic Surveillance Systems. We analyzed live births from 1990 to 2005 in the urban/rural area and from 1990 to 2008 in the rural area. The annual average rate reduction (AARR) and social under-five mortality inequality were calculated using the education level of the mother as a proxy for socio-economic position. Causes of child death were based on systematic interviews (verbal autopsy). RESULTS: Under-five mortality in all areas is declining at a rate sufficient to achieve MDG4 by 2015. Urban León showed greater reduction (AARR = 8.5%) in mortality and inequality than rural León (AARR = 4.5%) or Cuatro Santos (AARR = 5.4%). Social inequality in mortality had increased in rural León and no improvement in survival was observed among mothers who had not completed primary school. However, the poor and remote rural area Cuatro Santos was on track to reach MDG4 with equitable child survival. Most of the deaths in both areas were due to neonatal conditions and infectious diseases. CONCLUSIONS: All rural and urban areas in Nicaragua included in this study were on track to reach MDG4, but social stratification in child survival showed different patterns; unfavorable patterns with increasing inequity in the peri-urban rural zone and a more equitable development in the urban as well as the poor and remote rural area. An equitable progress in child survival may also be accelerated in very poor settings.