INTRODUCTION: The hypothesis that paracetamol, one of the most widely used medicines, may increase the risk of asthma and allergic disease is of obvious importance but prospective cohort data looking at dose and timing of exposure are lacking. OBJECTIVE: The aim of the study is to investigate the role of paracetamol use in early life on the prevalence and incidence of wheeze, eczema, rhinitis and allergic sensitization, prospectively over 5 years in an Ethiopian birth cohort. METHODS: In 2005/6 a birth cohort of 1006 newborns was established in Butajira, Ethiopia. Questionnaire data on allergic disease symptoms, paracetamol use and numerous potential confounders were collected at ages 1, 3 and 5, and allergen skin sensitivity measured at ages 3 and 5. Multivariate logistic regression was used to determine independent effects of paracetamol exposure on the incidence of each outcome between ages 3 and 5, and prevalence at age 5. FINDINGS: Paracetamol use in the first 3 years of life was reported in 60% of children and was associated with increased incidence of wheeze, eczema, rhinitis and allergic sensitisation between ages 3 and 5 which was statistically significant for wheeze and eczema. High exposure (reported use in the past month at age 1 and 3) was associated with a more than 3-fold increased risk of new onset wheeze (adjusted odds ratio (OR) 3.64; 95% confidence interval, 1.34 to 9.90) compared to never users. Use in the past year at age 3 but not age 1 was associated with ORs at least as large as those for use in first year of life only. Significant positive dose-response effects of early life use were seen in relation to the prevalence of all outcomes at age 5. CONCLUSIONS: Use of paracetamol in early life is a strong risk factor for incident allergic disease in childhood.