Intestinal damage in malnutrition constitutes a threat to the survival of many thousands of children globally. We studied children in Lusaka, Zambia, with severe acute malnutrition (SAM) and persistent diarrhea using endoscopy, biopsy and analysis of markers and protective proteins in blood and intestinal secretions. We carried out parallel investigations in apparently healthy adults, and analyzed biomarkers only in apparently healthy children. Villus height and crypt depth did not differ in children with SAM and adult controls, but epithelial surface was reduced in children with SAM (median 445, interquartile range (IQR) 388, 562 μm per 100 μm muscularis mucosae) compared to adults (578, IQR 465,709; P = 0.004). Histological lesions and disruptions of claudin-4 and E-cadherin were most pronounced in children with SAM. Circulating lipopolysaccharide, a marker of bacterial translocation, was higher in malnourished children (251, IQR 110,460 EU/ml) than in healthy children (51, IQR 0,111; P = 0.0001). Other translocation markers showed similar patterns. Anti-Deamidated Gliadin Peptide IgG concentrations, although within the normal range, were higher in children with SAM (median 2.7 U/ml, IQR 1.5–8.6) than in adults (1.6, 1.4–2.1; P = 0.005), and were inversely correlated with villus height (ρ = − 0.79, n = 13, P = 0.001). Malnutrition enteropathy is associated with intestinal barrier failure and immune dysregulation.