Background Child malnutrition continues to be the leading public health problem in developing countries. In Ethiopia, malnutrition is a leading cause of child illness and death. Recently the composite index of anthropometric failure (CIAF) has been implemented to measure the prevalence of malnutrition. This index presents a more complete picture compared with the previous conventional indices. In this study, CIAF was used to determine the prevalence of malnutrition among children aged 0–59 months in rural Ethiopia. Methods Data was extracted from the 2014 Ethiopian Mini Demographic and Health Survey (EMDHS) for this study. A total of 3095 children were included in the analysis. The composite index of anthropometric failure (CIAF) was used to measure the nutritional status of the children. Logistic regression was fitted, to identify factors associated with malnutrition among children in rural Ethiopia, using STATA 13. Result The prevalence of malnutrition among rural children in Ethiopia was 48.5%. Age of the children, preceding birth interval, educated status of mother, wealth status, and region were factors independently associated with nutritional status of children in rural Ethiopia. Conclusion The prevalence of malnutrition among children in rural Ethiopia was high. A child older than 12 months, having uneducated mother, living in a household with poor wealth status, born with short birth interval, and living in some region of the country are associated with increased odds of being malnourished.