Background: Globally, diarrhea is the second leading cause of death in children under five years of age and is a major public health problem. Despite several health care initiatives taken by the government, a large proportion of under-five children still experience diarrheal diseases which cause high childhood mortality in India. This study aims to examine the socio-demographic and environmental factors of diarrhea in children under five years old in India. Methods: A cross-sectional study was designed using the recent round of the National Family Health Survey (NFHS), conducted in 2015–16. A total of 247,743 living children below five years of age were included in the analysis. Bivariate and multivariate logistic regression models were carried out to assess the factors associated with childhood diarrheal disease. Results: In India, about 9% of under-five children experience diarrheal disease in the past two weeks. Children living in rural areas (Adjusted odds ratio [aOR]: 1.05; 95% CI: 1.01, 1.09), belonged to scheduled tribe (aOR: 0.83; 95% CI: 0.79, 0.89) and other castes (aOR: 0.92; 95% CI: 0.88, 0.97), Muslim children (aOR: 1.18; 95% CI: 1.13, 1.24), and children resided in the central (aOR: 1.61; 95% CI: 1.52, 1.70) and west (aOR: 1.08; 95% CI: 1.01, 1.15) regions were significantly associated with higher likelihood of diarrhea in the past two weeks. Concerning environmental factors, child stool disposal (aOR: 1.06; 95% CI: 0.98, 1.09), floor materials (aOR: 1.08; 95% CI: 1.03, 1.12) and roof materials (aOR: 1.08; 95% CI: 1.04, 1.13) of the household were found to be significant factors of childhood diarrhea occurrence. Conclusions: Diarrhea is common among rural, scheduled caste, Muslim and poor families’ children. Regarding environmental factors, stool disposal practices in the household, main floor and roof materials of the household unit are risk factors of diarrhea. Targeted approach should be initiated to mitigate the problem of poor health status of children by providing adequate health care. The policy-makers and stakeholders should address adverse environmental conditions by the provision of latrine and improved housing facilities.