Objectives To investigate the impact of isoniazid prophylaxis on mortality and incidence of tuberculosis in children with HIV. Design Two centre prospective double blind placebo controlled trial. Participants Children aged ≥ 8 weeks with HIV. Interventions Isoniazid or placebo given with co-trimoxazole either daily or three times a week. Setting Two tertiary healthcare centres in South Africa. Main outcome measures Mortality, incidence of tuberculosis, and adverse events. Results Data on 263 children (median age 24.7 months) were available when the data safety monitoring board recommended discontinuing the placebo arm; 132 (50%) were taking isoniazid. Median follow-up was 5.7 (interquartile range 2.0-9.7) months. Mortality was lower in the isoniazid group than in the placebo group (11 (8%) v 21 (16%), hazard ratio 0.46, 95% confidence interval 0.22 to 0.95, P = 0.015) by intention to treat analysis. The benefit applied across Centers for Disease Control clinical categories and in all ages. The reduction in mortality was similar in children on three times a week or daily isoniazid. The incidence of tuberculosis was lower in the isoniazid group (5 cases, 3.8%) than in the placebo group (13 cases, 9.9%) (hazard ratio 0.28, 0.10 to 0.78, P = 0.005). All cases of tuberculosis confirmed by culture were in children in the placebo group. Conclusions Prophylaxis with isoniazid has an early survival benefit and reduces incidence of tuberculosis in children with HIV. Prophylaxis may offer an effective public health intervention to reduce mortality in such children in settings with a high prevalence of tuberculosis. Trial registration. Clinical Trials NCT00330304