BACKGROUND: There is no clear consensus on the most sustainable and effective distribution strategy for insecticide treated bed nets (ITNs). Tanzania has been a leader in social marketing but it is still not clear if this can result in high and equitable levels of coverage. METHODS: A cluster-randomized survey of ITN and bed net ownership and use was conducted in a rural area exposed to intense Plasmodium falciparum transmission in NE Tanzania where ITN distribution had been subject to routine delivery of national strategies and episodic free distribution through local clinics. Data were collected on household assets to assess equity of ITN coverage and a rapid diagnostic test for malaria (RDT) was performed in all ages. RESULTS: Among 598 households in four villages the use of any or insecticidal bed nets in children less than five years of age was 71% and 54% respectively. However there was a 19.8% increase in the number of bed nets per person (p < 0.001) and a 13.4% increase in the number of insecticidal nets per person (p < 0.001) for each quintile increase in household asset score. The odds of being RDT-positive were reduced by more than half in the least poor compared to the poorest households (OR 0.49, 95% CI 0.35-0.70). Poorer households had paid less for their nets and acquired them more recently, particularly from non-commercial sources, and bed nets in the least poor households were less likely to be insecticidal compared to nets in the poorest households (OR 0.44, 95% CI 0.26-0.74). CONCLUSION: Marked inequity persists with the poorest households still experiencing the highest risk of malaria and the lowest ITN coverage. Abolition of this inequity within the foreseeable future is likely to require mass or targeted free distribution, but risks damaging what is otherwise an effective commercial market.