Enteric pathogens can be transmitted within the household and the surrounding neighborhood. The objective of this study was to understand the effect of neighborhood-level sanitation coverage on contamination of the household environment with levels of fecal indicator bacteria in rural Bangladesh. We conducted spot-check observations of sanitation facilities in neighboring households (NHs) within a 20-m radius of target households with children aged 6-24 months. Sanitation facilities were defined as improved (a private pit latrine with a slab or better) or unimproved. Fecal coliforms (FCs) on children's hands and sentinel toy balls were measured and used as indicators of household-level fecal contamination. We visited 1,784 NHs surrounding 428 target households. On average, sentinel toy balls had 2.11(standard deviation [SD] = 1.37) log10 colony-forming units (CFUs) of FCs/toy ball and children's hands had 2.23 (SD = 1.15) log10 CFU of FCs/two hands. Access to 100% private improved sanitation coverage in the neighborhood was associated with a small and statistically insignificant difference in contamination of sentinel toy balls (difference in means = -0.13 log10 CFU/toy ball; 95% confidence intervals [CI]: -0.64, 0.39; P = 0.63) and children's hands (difference in means = -0.11 log10 CFU/two hands; 95% CI: -0.53, 0.32; P = 0.62). Improved sanitation coverage in the neighborhood had limited measurable effect on FCs in the target household environment. Other factors such as access to improved sanitation in the household, absence of cow dung, presence of appropriate water drainage, and optimal handwashing practice may be more important in reducing FCs in the household environment.