Childhood anemia affects around half of under five children and has impacts on physical, mental, and social development, both in the short and long term. The objective of the study was to determine the prevalence of anemia and its associated factors among under-five children living in Arba Minch Health and Demographic Surveillance System Sites (HDSS). A community-based cross-sectional study was conducted among randomly selected under-five children with their caregivers living in Arba Minch HDSS from June to August 2023. The questionnaire was developed to assess sociodemographic, nutrition, healthcare, and environmental characteristics. Hemoglobin concentration was adjusted for altitude of the village. Anemia was defined as the hemoglobin concentration below 11 g/dL. It was further categorized as mild (between 10-10.9 g/dL), moderate (7-9.9 g/dL), and severe (less than 7 g/dL). The analysis of factors associated with anemia was assessed by using logistic regression and significance was determined at p-value <0.05. A total of 332 under-five children with a mean (SD) age of 33(15) months participated. The overall prevalence of anemia among under-five children was 35.3% (95% CI: 30.4, 40.7). The magnitude of mild, moderate, and severe anemia was 12.4% (95%CI: 9.2, 16.4), 22.1% (95%CI: 17.9, 26.9), and 0.9% (95%CI: 0.3, 2.8), respectively. Anemia had a negative association with the advancing age of the children (0.95, 95%CI: 0.93, 0.97) and improvement in the family wealth score (0.86, 95%CI: 0.75, 0.99). Nearly one-third of the under-five children were anemic and childhood anemia is a moderate public health problem in the study area. The magnitude of anemia was negatively associated with the advance in child age and with the increase in the wealth status of the household. It is important to provide due attention to reduce the magnitude of anemia specifically for the youngest children and for those children from poor households.