Poor water, sanitation and hygiene (WaSH) conditions are hypothesized to contribute to environmental enteric dysfunction (EED), a subclinical condition that may be associated with chronic undernutrition and impaired linear growth. We evaluated the effect of a combined water and sanitation intervention on biomarkers of EED, and then assessed associations of biomarkers of EED with height-for-age z-scores (HAZ), in children under five. We conducted a sub-study within a matched cohort study of a household-level water and sanitation infrastructure intervention in rural Odisha, India, in which we had observed an effect of the intervention on HAZ. We collected stool samples (N = 471) and anthropometry data (N = 209) for children under age 5. We analyzed stool samples for three biomarkers of EED: myeloperoxidase (MPO), neopterin (NEO), and α1-anti-trypsin (AAT). We used linear mixed models to estimate associations between the intervention and each biomarker of EED and between each biomarker and HAZ. The intervention was inversely associated with AAT (-0.25 log μg/ml, p = 0.025), suggesting a protective effect on EED, but was not associated with MPO or NEO. We observed an inverse association between MPO and HAZ (-0.031 per 1000 ng/ml MPO, p = 0.0090) but no association between either NEO or AAT and HAZ. Our results contribute evidence that a transformative WaSH infrastructure intervention may reduce intestinal permeability, but not intestinal inflammation and immune activation, in young children. Our study also adds to observational evidence of associations between intestinal inflammation and nutritional status, as measured by HAZ, in young children. Trial Registration: ClinicalTrials.gov (NCT02441699).