Malnutrition results in serious consequences for growth and cognitive development in children. We studied select child and maternal biological factors, socio-economic factors, enteric pathogenic burden, and gut function biomarkers in 402 children 6–24 months of age in North-eastern Brazil. In this prospective case-control study, not being fed colostrum (odds ratio [OR] = 3.29, 95% confidence interval [CI] 1.73–6.26), maternal age ≥18 years (OR = 1.88, 95% CI 1.10–3.22), and no electrical fan (OR = 2.46, 95% CI 1.22–4.96) or bicycle (OR = 1.80, 95% CI 1.10–2.95) in the household were positively associated, and higher birth weight (OR = 0.27, 95% CI 0.19–0.38), larger head circumference (OR = 0.74, 95% CI 0.66–0.82), and shortness of breath in the last two weeks (OR = 0.49, 95% CI 0.27–0.90) were negatively associated with malnutrition. Subclinical enteric pathogen infections were common, and enteroaggregative Escherichia coli infections were more prevalent in malnourished children (p = 0.045). Biomarkers such as the lactulose:mannitol test, myeloperoxidase, neopterin, and calprotectin were highly elevated in both malnourished and nourished children. Nourished children had a better systemic immune response than the malnourished children, as detected by elevated serum amyloid A-1 (SAA-1) and soluble cluster of differentiation protein 14 (sCD14) biomarkers (P < 0.001). SAA-1 and sCD14 were also associated with better nutritional z-scores. Neonatal, maternal, and socio-economic factors were associated with malnutrition in children. There was a substantial subclinical enteric pathogen burden, particularly with EAEC, in malnourished children.