To evaluate enteropathogens and other factors associated with severe disease in children with diarrhea, 381 children <5 years of age with diarrhea and moderate to severe dehydration (in-patients) and 381 age-, sex-, and date-of-visit-matched children, with mild diarrhea (outpatients) presenting to a hospital in Peru, were studied. Rotavirus was detected in 52% of the in- patients and 35% of the out-patients (odds ratio [OR] = 2.3, 95% confidence interval [95% CI] = 1.6-3.2); 95% of the rotaviruses among in-patients were of serotypes G1-G4. The risk of severe diarrhea was particularly great in children who were not exclusively breast-fed in early infancy and who also lacked piped water in their homes (for children with both characteristics OR = 6.8, 95% CI = 3.6-12.8). The high prevalence of rotavirus and its association with severe diarrhea underscores the need for rotavirus vaccines. Interventions to educate mothers and improve access to safe water should augment the impact of rotavirus vaccines in preventing severe diarrhea.