Point-of-use water chlorination is one of the most effective means to prevent diarrhea in under-five children although challenges remain in its adoption and effective use. In Ethiopia, evidence of point-of-use water chlorination among households with under-five children in rural and urban settings that is verified with water testing is scarce. A comparative cross-sectional study was conducted among urban and rural households with under-five child in Kersa Health and Demographic Surveillance Site, Eastern Ethiopia from June to August, 2016. Data were collected from a caregiver of systematically selected households and analyzed using multivariable logistic regression. A total of 1,912 households were included in the analysis with a 96.5% response rate. In rural areas, 4.6% of caregivers were reportedly chlorinating water at point-of-use and 1.2% were confirmed with free residual chlorine. In urban areas, 17.1% of caregivers were reportedly chlorinating water and 6.6% were confirmed to have free residual chlorine. In two settings, caregivers' point-of-use water chlorination was associated with chlorine taste and water quality perception. Inaccessibility to treatment products in rural areas and use of bottled water in urban areas were among the reasons to discontinue point-of-use water chlorination. Behavior changing interventions with proper distribution and marketing is needed for sustainable point-of-use chlorination.