Objective To determine the effects of lipid-based nutrient supplements (LNS) on children's Hb, linear growth and development, compared with supplementation with micronutrient powder (MNP). Design The study was a two-arm parallel-group randomized controlled trial, where participants received either LNS or MNP for daily consumption during 6 months. Supplements were delivered by staff at government-run health centres. Hb, anthropometric, motor development, language development and problem-solving indicators were measured by trained research assistants when children were 12 months of age. Setting The study was conducted in five rural districts in the Province of Ambo in the Department of Huánuco, Peru. Subjects We enrolled 6-month-old children (n 422) at nineteen health centres. Results Children who received LNS had a higher mean Hb concentration and lower odds of anaemia than those who received MNP. No significant differences in height-for-age, weight-for-height or weight-for-age Z-score, or stunting and underweight prevalence, were observed. Provision of LNS was associated with a higher pre-verbal language (gestures) score, but such effect lost significance after adjustment for covariates. Children in the LNS group had higher problem-solving task scores and increased odds of achieving this cognitive task than children in the MNP group. No significant differences were observed on receptive language or gross motor development. Conclusions LNS between 6 and 12 months of age increased Hb concentration, reduced anaemia and improved cognitive development in children, but showed no effects on anthropometric indicators, motor or language development.