Background: Acute Renal Failure (ARF) is a common complication observed in critically ill newborns and neonates admitted in NICU. Methods and Subjects: This prospective case control study was carried out in the Neonatal Intensive Care Unit of a tertiary level hospital for a period of one year with an objective of determining the incidence of ARF in neonatal sepsis. 113 neonates, who had a positive sepsis screen and/ or a positive blood culture were evaluated for the presence or absence of ARF. Sepsis was identified on the basis of either a positive blood culture or a positive sepsis screen. ARF was defined as Blood Urea Nitrogen (BUN) > 20 mg/dl on two separate occasions at least 24 hrs apart. Oliguria was defined as urine output <1 ml/kg/hr for more than 24 hours. Data was analysed using Student’s t test. Results: The sepsis screen positivity rate was 89.4% whereas the culture positivity rate was 44.2%. ARF developed in 32 out of 113 neonates giving an incidence of 28.3%. The ARF in neonates was predominantly non oliguric (59%) and it was significantly associated with gestational age (p value 0.001), birth weight (p value 0.013), weight on admission (p value 0.001) and the place of dwelling (p value 0.034). There was high incidence of volume responsive ARF in those neonates with presumptive ARF on day 1 of admission. The overall mortality of the study group was 25.7%; it was 50% in the neonates with ARF and in neonates with sepsis alone it was only 16% (p value <0.001) showing the significant increase in mortality in neonates with sepsis who develop ARF as a complication. Conclusion: There is a high prevalence of volume sensitive ARF in neonatal sepsis that can be corrected by proper fluid and electrolyte management.