BACKGROUND: Artemisinin-based combination therapy (ACT) has been promoted as a means to reduce malaria transmission due to their ability to kill both asexual blood stages of malaria parasites, which sustain infections over long periods and the immature derived sexual stages responsible for infecting mosquitoes and onward transmission. Early studies reported a temporal association between ACT introduction and reduced malaria transmission in a number of ecological settings. However, these reports have come from areas with low to moderate malaria transmission, been confounded by the presence of other interventions or environmental changes that may have reduced malaria transmission, and have not included a comparison group without ACT. This report presents results from the first large-scale observational study to assess the impact of case management with ACT on population-level measures of malaria endemicity in an area with intense transmission where the benefits of effective infection clearance might be compromised by frequent and repeated re-infection. METHODS: A pre-post observational study with a non-randomized comparison group was conducted at two sites in Tanzania. Both sites used sulphadoxine-pyrimethamine (SP) monotherapy as a first-line anti-malarial from mid-2001 through 2002. In 2003, the ACT, artesunate (AS) co-administered with SP (AS + SP), was introduced in all fixed health facilities in the intervention site, including both public and registered non-governmental facilities. Population-level prevalence of Plasmodium falciparum asexual parasitaemia and gametocytaemia were assessed using light microscopy from samples collected during representative household surveys in 2001, 2002, 2004, 2005 and 2006. FINDINGS: Among 37,309 observations included in the analysis, annual asexual parasitaemia prevalence in persons of all ages ranged from 11% to 28% and gametocytaemia prevalence ranged from <1% to 2% between the two sites and across the five survey years. A multivariable logistic regression model was fitted to adjust for age, socioeconomic status, bed net use and rainfall. In the presence of consistently high coverage and efficacy of SP monotherapy and AS + SP in the comparison and intervention areas, the introduction of ACT in the intervention site was associated with a modest reduction in the adjusted asexual parasitaemia prevalence of 5 percentage-points or 23% (p < 0.0001) relative to the comparison site. Gametocytaemia prevalence did not differ significantly (p = 0.30). INTERPRETATION: The introduction of ACT at fixed health facilities only modestly reduced asexual parasitaemia prevalence. ACT is effective for treatment of uncomplicated malaria and should have substantial public health impact on morbidity and mortality, but is unlikely to reduce malaria transmission substantially in much of sub-Saharan Africa where individuals are rapidly re-infected.