Estimating the proportion of children with diarrhoea and those who are taken in as inpatients or outpatients is important for policy planning, resource allocation, and to evaluate the effectiveness of diarrhoea prevention and control interventions. We aimed to estimate the proportion of children <2 years of age with diarrhoea, explore their treatment-seeking practices, and identify factors associated with both diarrhoea and treatment seeking. We designed a longitudinal study based on a sample of children <2 years of age in the Birhan field site from September 2018 to September 2019. The study site collected data on child mortality and morbidity and treatment-seeking practice for those with a history of illness every three months. Mothers/caregivers were asked about signs or symptoms of illnesses for a two-week period prior to each study visit. We estimated the proportion of children <2 years of age with diarrhoea and treatment-seeking practices for each of the four rounds of data collection and identified associated factors through bivariable and multivariable logistic regression. We enrolled 4678 children <2 years of age. The proportion of children with diarrhoea was the highest from 11 September 2018 to 9 December 2018 (4.47%; 95% confidence interval (CI) = 3.70-5.35) and the lowest from 10 December 2018 to 9 March 2019 (2.48%; 95% CI = 1.90-3.19). Children from households with chlorinated drinking water had a 50% (adjusted odds ratio (aOR) = 0.50; 95% CI = 0.28-0.88) lower odds of developing diarrhoea compared to those who did not. Among 339 children with diarrhoea, 275 (81.12%; 95% CI = 76.54-85.15) were taken to health facilities for treatment. Female children had lower odds of being taken to health facilities for treatment (aOR = 0.37; 95% CI = 0.17-0.80) compared to males. While the proportion of children with diarrhoea in our study was lower than that observed in prior research conducted in Ethiopia, treatment-seeking practices were higher. Female children and children from the poorest families had lower odds of treatment. We recommend more studies to explore gender-based and socioeconomic differences affecting treatment-seeking practices.