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ABSTRACT Background Childhood undernutrition continues to be a major public health concern in low‐ and middle‐income countries, contributing substantially to morbidity and mortality and impairing growth and development among children under 5 years. Although inadequate diet and infections are well‐established determinants, the influence of household environmental factors such as indoor air pollution, unsafe drinking water, poor sanitation and improper waste disposal remains underexplored in developing countries. Objectives To estimate the prevalence of undernutrition among children under 5 years in rural Puducherry and to examine its association with selected environmental factors. Methods A community‐based cross‐sectional study was conducted from March to May 2025 in selected rural areas in Puducherry, India. Using consecutive sampling, 308 children under 5 years were enrolled. Data on socio‐demographic characteristics, feeding practices, morbidity and household environmental conditions were collected through a pretested semistructured questionnaire. With anthropometric measures, underweight, stunting and wasting were defined using World Health Organization Child Growth Standards. Data were analysed using STATA v14.0 and WHO Anthro software 3.2.2. The proportions of undernutrition indicators such as stunting, underweight and wasting were presented with a 95% confidence interval (CI). Associations were assessed using log‐binomial regression to estimate prevalence ratios (PRs) with 95% CI. Results The prevalence of underweight, stunting and wasting was 13.3%, 17.5% and 10.7%, respectively. Higher birth order, low birth weight, non‐exclusive breastfeeding, indoor air pollution and improper waste disposal were significantly associated with undernutrition. Indoor air pollution showed a strong association with both overall undernutrition (aPR: 2.86) and stunting (aPR: 2.37), whereas unimproved waste disposal was associated with underweight (aPR: 1.77). Conclusion Despite a relatively low burden than national averages, undernutrition among children under 5 years in rural Puducherry remains significantly influenced by adverse household environmental conditions. Strengthening environmental conditions with multisectoral interventions alongside existing nutrition programmes is essential for sustained improvements in child growth and health outcomes.