We compared the impact of a commercial chlorination product (brand name Air RahMat) in stored drinking water to traditional boiling practices in Indonesia. We conducted a baseline survey of all households with children <5 years in four communities, made 11 subsequent weekly home visits to assess acceptability and use of water treatment methods, measured Escherichia coli concentration in stored water, and determined diarrhoea prevalence among children <5 years. Of 281 households surveyed, boiling (83%) and Air RahMat (7%) were the principal water treatment methods. Multivariable log-binomial regression analyses showed lower risk of E. coli in stored water treated with Air RahMat than boiling (risk ratio (RR) 0·75, 95% confidence interval (CI) 0·56–1·00). The risk of diarrhoea in children <5 years was lower among households using Air RahMat (RR 0·43, 95% CI 0·19–0·97) than boiling, and higher in households with E. coli concentrations of 1–1000 MPN/100 ml (RR 1·54, 95% CI 1·04–2·28) or >1000 MPN/100 ml (RR 1·86, 95% CI 1·09–3·19) in stored water than in households without detectable E. coli. Although results suggested that Air RahMat water treatment was associated with lower E. coli contamination and diarrhoeal rates among children <5 years than water treatment by boiling, Air RahMat use remained low.