Objective: To determine whether the presence of in vitro penicillin-resistant Streptococcus pneumoniae increases the risk of clinical failure in children hospitalised with severe pneumonia and treated with penicillin/ampicillin. Design: Multicentre, prospective, observational study. Setting: 12 tertiary-care centres in three countries in Latin America. Patients: 240 children aged 3–59 months, hospitalised with severe pneumonia and known in vitro susceptibility of S pneumoniae. Intervention: Patients were treated with intravenous penicillin/ampicillin after collection of blood and, when possible, pleural fluid for culture. The minimal inhibitory concentration (MIC) test was used to determine penicillin susceptibility of the pneumococcal strains isolated. Children were continuously monitored until discharge. Main outcome measures: The primary outcome was treatment failure (using clinical criteria). Results: Overall treatment failure was 21%. After allowing for different potential confounders, there was no evidence of association between treatment failure and in vitro resistance of S pneumoniae to penicillin according to the Clinical Laboratory Standards Institute (CLSI)/National Committee for Clinical Laboratory Standards (NCCLS) interpretative standards (adjRR = 1.03; 95%CI: 0.49–1.90 for resistant S pneumoniae). Conclusions: Intravenous penicillin/ampicillin remains the drug of choice for treating penicillin-resistant pneumococcal pneumonia in areas where the MIC does not exceed 2 μg/ml.