Childhood pneumonia is a major public health problem. The aim of this prospective hospital-based study is to determine the incidence and risk factors for community-acquired severe pneumonia in children in Ujjain, India. The study includes 270 children, 161 (60%) boys and 109 (40%) girls, aged between 2 months and 5 years with World Health Organization defined and radiologically confirmed severe pneumonia. Considering the 270 children, 64% (95% confidence interval (CI)57.9-69.4) have severe pneumonia. The following are identified as risk factors for severe pneumonia from the generalized logistic regression model: Born premature (adjusted odds ratio (AOR) 7.50; 95% CI 2.22-25.31; = 0.001); history of measles (AOR 6.35; 95% CI 1.73-23.30; = 0.005); incomplete vaccination (AOR 2.66; 95% CI 1.09-6.48; = 0.031); acyanotic congenital heart disease (AOR 9.21; 95% CI 2.29-36.99; = 0.002); home treatment tried (AOR 3.84; 95% CI 1.42-10.39; = 0.008); living in a kuchha house (AOR 3.89; 95% CI 1.51-10.01; = 0.027); overcrowding (AOR 4.50; 95% CI 1.75-11.51; = 0.002);poor ventilation in living area (AOR 16.37; 95% CI 4.67-57.38; < 0.001); and practicing open defecation (AOR 16.92; 95% CI 4.95-57.85; < 0.001). Awareness of these risk factors can reduce mortality due to severe pneumonia.