Children with severe acute malnutrition (SAM) are at high risk of infectious mortality and morbidity during and after hospital discharge. This risk persists despite nutritional and prophylactic antibiotic interventions among children with SAM, implicating persistent deficits in their immune defenses. Here we test the hypothesis that innate immune cells from children (0-59 months) hospitalized with SAM in Zambia and Zimbabwe (n=141) have distinct capacity to respond to bacteria relative to adequately-nourished healthy controls from the same communities (n=92). Neutrophils and monocytes from SAM inpatients had a higher capacity to bind E. coli but lower monocyte activation and pro-inflammatory mediator secretion in response to E. coli lipopolysaccharide (LPS) or heat-killed Salmonella typhimurium (HKST) than controls. Bacterial binding capacity differentiated children with SAM from controls after adjusting for clinical and demographic heterogeneity and normalized with duration of hospital treatment. Wasting severity, HIV status, and age group were associated with LPS and HKST-induced cytokine secretion, monocyte activation, and myeloperoxidase secretion, respectively. Bacterial binding capacity and monocyte activation during hospitalization were associated with higher odds of persistent SAM at discharge; a risk factor for subsequent mortality. Thus, SAM shifts anti-bacterial innate immune cell function, favoring bacterial containment over pro-inflammatory activation upon challenge, which contributes to persistent health deficits among hospitalized children.