No childhood pneumonia incidence data for Indonesia exist, and few data exist for Asia as a whole. From February 1, 1998, to January 31, 1999, we conducted acute respiratory illness (ARI) surveillance among children < 24 months of age in 50 mainly rural villages on Lombok Island, Indonesia. The total number of child-years at risk during the study period was 17,015. The documented incidences of simple, severe, hospitalized, and radiologically confirmed alveolar pneumonia were 21, 8.3, 5.3, and 1.8 per 100 child-years of observation, respectively. For all outcomes, the incidence was higher among younger and rural children. All cause and ARI-specific infant mortality rates were 84 and 33 per 1,000 live births, respectively. More than 65% of deaths due to ARI occurred outside of a hospital setting. The incidence of pneumonia is high in Lombok. Interventions should include introducing vaccines to prevent infections leading to pneumonia and increasing the access of critically ill infants to the health care system.