The aim of this study was to determine why health workers fail to follow the Integrated Management of Childhood Illness (IMCI) guidelines for severely ill children at first-level outpatient health facilities in rural areas of the United Republic of Tanzania. Retrospective and prospective case reviews of severely ill children under 5 years of age were conducted at health facilities in four districts. Treatment was ascertained and characteristics associated with referral were examined. Follow-up interviews were conducted with parents of severely ill children and health workers were given questionnaires and interviewed. In total, 502 cases were reviewed at 62 facilities. Treatment with antimalarials and antibiotics was consistent with the diagnosis given by health workers. However, of the 240 children classified as having 'very severe febrile disease', none received all the recommended IMCI therapies, and only 25% of severely ill children were referred. Lethargy and anaemia diagnoses were independently associated with referral. Most (91%) of the health workers surveyed indicated that certain severe conditions could be managed without referral. The surveyed health workers rarely adhered to IMCI treatment and referral guidelines for children with severe illness. They administered therapy based on narrow diagnoses rather than IMCI classifications, disagreed with referral guidelines, and often considered referral unnecessary. To improve the implementation of IMCI, attention should focus on the reasons for non-adherence among health workers.