Background There is a need for valid and reliable observational measures of early child development in low‐income and middle‐income country settings. Methods The aims of the study were to adapt the Bayley Scales of Infant Development (Bayley III) for a rural Ethiopian setting and evaluate reliability and validity. The study was carried out between January 2008 and January 2009 in the Butajira demographic surveillance site, south central Ethiopia. The Bayley III was adapted to be socioculturally appropriate for a rural Ethiopian context. Nurses and high school graduates were trained in administration of the measure for 10 days. Inter‐rater reliability was evaluated (n = 60). Content, construct and convergent validity was then examined on a population‐based cohort of children at the ages of 30 (n = 440) and 42 months (n = 456). Mokken scale analysis was used to determine the scalability of items in unidimensional, hierarchical sub‐scales. The mean score was compared by age of child and by stunting status (less than −2 z scores below the standard height‐for‐age). Results The intra‐class correlations between raters were above 0.90 for all sub‐scales of the child development measure. Some scale items were not contextually relevant and showed poor scalability. However, the majority of items scaled onto the existing sub‐scales of the international measure to form adequate‐to‐strong hierarchical scales with good internal consistency (Cronbach's α above 0.70 except for gross motor and expressive language sub‐scales). Item‐scale coefficients were good. The mean score of all sub‐scales was significantly higher in the older group of children (33.02 higher total score; P < 0.001) and in the children who were stunted (total Bayley score 2.58 (95% confidence interval 0.07 to 5.10) points lower at 30 months and 3.87 (1.94 to 5.81) points lower at 42 months. Conclusions An adapted version of an international, observational measure of child development was found to be reliable, valid and feasible in a rural Ethiopian setting.