A prospective hospital based study on severe malaria in under-five children was carried out over a period of one year in a district hospital of Ethiopia to determine the case fatality rate (CFR), factors contributing for high mortality, health seeking behaviour of the care takers, direct cost and feasibility of operating the WHO treatment guidelines at a district level. One hundred and one children aged between 6 and 59 months fulfilling the criteria of severe malaria have been recruited in the study and treated according to WHO guidelines. The most frequently encountered clinical manifestations of severe malaria were prostration and hypoglycaemia, the prevalence being 28.7% respectively. The over all case fatality rate of severe malaria was 11.9%. Cerebral malaria was the only isolated form of severe malaria with high CFR (OR=5.06, 95%CI 1.01-25.1). The hospital CFR of severe anaemia was 16.7%, which could have been reduced by provision of safe blood transfusion. Most of the children (80.2%) presented to the hospital in more than 24 hours after the onset of the illness. Forty seven percent of children received drugs at home and in 96% of the cases it was antimalarial drugs. The antimalarial drug treatment (dose/duration) was adequate in 71%. Children receiving appropriate anti-malaria treatment at home show a tendency towards a lower CFR. The total direct cost per disease episode ranged from USD 13.75 to 27.5. Eighty five percent of the direct cost was due to expenditures in the hospital. Implementation of the management protocol based on the WHO guidelines has required substantial input of resources. Major constraints noted were related to availability of safe blood andfollow-up after discharge. The study provides useful information for improved case management of severe malaria thereby reduce mortality of the under-five children due to severe malaria.