OBJECTIVE: To identify factors associated with diarrhoea occurrence in children in a city in a middle-income country, with high access to water and sanitation. METHODS: A case-control study in the city of Salvador, north-eastern Brazil was conducted from November 2002 to August 2004. The study population consisted of children presenting at a health facility. A total of 1688 cases of diarrhoea and 1676 controls were selected. Data collection was by a questionnaire and structured observation during home visits. The explanatory variables were grouped according to a conceptual model defined previously. Analysis was done using a hierarchical approach, to provide a more dynamic view of the transmission characteristics of childhood diarrhoea. Non-conditional logistic regression was used, and odds ratio and population-attributable fractions were estimated. RESULTS: Socioeconomic factors contributed most to determining diarrhoea occurrence, followed by interpersonal contact, while factors related to food preparation, the environment and water and sanitation made a smaller contribution. CONCLUSION: The findings indicate that the transmission of diarrhoea is influenced by factors from all hierarchical levels, with interpersonal transmission playing a relatively higher role than previously thought. This is compatible with a predominance of viruses and other agents spread by interpersonal routes including Shigella, Giardia and Cryptosporidium. Diarrhoea control strategies in similar settings (middle-income countries in which a large proportion of the population has access to water and sanitation) must give greater emphasis to policies geared towards reducing person-to-person transmission for the prevention of diarrhoea.