The World Health Organization (WHO) guidelines for diagnosis of pneumonia are based on the history of cough or difficult breathing and age-adjusted respiration rates. Metabolic acidosis associated with dehydrating diarrhoea also influences the respiration rate. Two hundred and four children, aged 2 to 59 months, with dehydrating diarrhoea and a history of cough and/or fast breathing, were enrolled in a prospective study. Pneumonia diagnoses were made on enrollment and again 6 hours post-enrollment (after initial rehydration), using the WHO guidelines. These were compared with investigators' clinical diagnosis based on history and findings of physical examination and a chest x-ray at the same time points. Using the WHO guidelines, 149/152 (98%) infants in the 2-11 months age-group and 38/40 (95%) children in the 12-59 months age-group were diagnosed to have pneumonia on enrollment, which dropped to 107 (70%) and 30 (75%) respectively at 6 hours post-enrollment. The specificity of the WHO guidelines for diagnosis of pneumonia was very low (6.9%) at enrollment but increased to 65.5% at 6 hours post-enrollment, after initial rehydration. The specificity of the WHO guidelines for diagnosis of pneumonia in young children is significantly reduced in dehydrating diarrhoea. For young children with dehydrating diarrhoea, rehydration, clinical and radiological assessments are useful in identifying those with true pneumonia.