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Abstract Background Achieving the Millennium Development Goals that aim to reduce malnutrition and child mortality depends in part on the ability of governments/policymakers to address nutritional status of children in general and those infected or affected by HIV/AIDS in particular. This study describes HIV prevalence in children, patterns of malnutrition by HIV status and determinants of nutritional status. Methods The study involved 671 children aged 12-59 months living in the Agincourt sub-district, rural South Africa in 2007. Anthropometric measurements were taken and HIV testing with disclosure was done using two rapid tests. Z-scores were generated using WHO 2006 standards as indicators of nutritional status. Linear and logistic regression analyses were conducted to establish the determinants of child nutritonal status. Results Prevalence of malnutrition, particularly stunting (18%), was high in the overall sample of children. HIV prevalence in this age group was 4.4% (95% CI: 2.79 to 5.97). HIV positive children had significantly poorer nutritional outcomes than their HIV negative counterparts. Besides HIV status, other significant determinants of nutritional outcomes included age of the child, birth weight, maternal age, age of household head, and area of residence. Conclusions This study documents poor nutritional status among children aged 12-59 months in rural South Africa. HIV is an independent modifiable risk factor for poor nutritional outcomes and makes a significant contribution to nutritional outcomes at the individual level. Early paediatric HIV testing of exposed or at risk children, followed by appropriate health care for infected children, may improve their nutritional status and survival.