BACKGROUND: Neonatal sepsis is one of the most important causes of mortality in developing countries and yet the most preventable. In developing countries clinical algorithms are used to diagnose clinical neonatal sepsis because of inadequate microbiological services. Most information on incidence and risk factors of neonatal sepsis are from hospital studies which may not be generalized to communities where a significant proportion of mothers do not deliver from health facilities. This study, conducted in urban Uganda, sought to determine the community based incidence of clinical neonatal sepsis and the factors associated. METHODS: This was a cohort of mother-neonate pairs in Kampala, Uganda from March to May 2012. The enrolled neonates were assessed for clinical sepsis and factors associated, and followed up till the end of the neonatal period. STATA version 10 was used to analyse the data. RESULTS: The community based incidence of neonatal sepsis was 11% (95% CI: 7.6-14.4). On bivariate analysis, lack of financial support from the father (OR 4.09, 95% CI 1.60-10.39) and prolonged rupture of membranes more than 18 h prior to delivery (OR 11.7, 95% CI 4.0-31.83) were significantly associated with neonatal sepsis. Maternal hand washing prior to handling the baby was found to be protective of neonatal sepsis (OR 0.41, 95% CI 0.18-0.94). Of the 317 infants who completed the follow up period, one died within the neonatal period giving a neonatal mortality of 0.003%. CONCLUSION: The high incidence of clinical neonatal sepsis in this urban community with high rates of antenatal care attendance and health facility delivery places a demand on the need to improve the quality of antenatal, perinatal and postnatal care in health facilities with regards to infection prevention including promoting simple practices like hand washing. The astoundingly low mortality rate is most likely because this was a low risk cohort. However it may also suggest that the neonatal mortality in developing countries may be reduced with promotion of simple low cost interventions like community follow up of neonates using village health teams or domiciliary care.