Little is known about the impact of indoor residual spraying (IRS) in areas with intense malaria transmission such as sub-Saharan Africa. In Malawi, IRS with lambda-cyhalothrin has been applied annually in an area of intense year-long transmission since 2007. We evaluated the impact of IRS on parasitemia and anemia prevalence in children less than five years of age by using a cross-sectional household survey conducted in 2009, six months after the second IRS spray round. We measured malaria parasitemia and anemia (hemoglobin level < 11 g/dL) in 899 children less than five years of age and used binomial regression to assess the impact of IRS by comparing children living in a household sprayed with IRS (direct IRS) with those in a household not sprayed with IRS, but in an IRS area (indirect IRS) and those living in a household not sprayed with IRS and not in an IRS area (no IRS). In the IRS area, 77% of households reported receiving IRS. Adjusting for bed net use, house construction, and socioeconomic status, we found that receiving direct IRS and indirect IRS were significantly associated with a 33% (95% confidence interval [CI] = 1-54%) and 46% (95% CI = 20-64%) reduction in parasitemia and a 21% (95% CI = 4-34%) and 30% (95% CI = 12-45%) reduction in anemia prevalence, respectively.