Long-term use of stavudine is associated with high incidence of lipodystrophy warranting its substitution with zidovudine as first-line antiretroviral treatment regimens. In a prospective observational study, we determined the spectrum and severity of haematological changes after switching from stavudine to zidovudine-based antiretroviral treatment in Indian children aged 2–18 years who had received stavudine-based antiretroviral treatment regimen for at least 48 weeks. They were followed for 48 weeks for changes in haematological parameters and CD4 counts after switching to zidovudine. Of the 60 children analysed, 45 (75%) showed significant drop in Hb (>1 g/dl); absolute fall being 2 g/dl (inter quartile range 1.5–3), (p = 0.02). Majority developed grade 1 anaemia (14[31%]) while only three (6%) developed grade 4 anaemia. Lowest Hb was recorded between 12 and 16 weeks with spontaneous improvement noticed after 28 weeks. Significant drop in absolute neutrophil count (5067 cells/mm³ to 3625 cells/mm³; p = 0.004) was also observed but none developed severe neutropenia. No significant changes were noticed in platelet and CD4 counts. Since the incidence of severe drug toxicity was low with zidovudine and majority of children recovered without intervention, drug toxicity should not preclude its routine use in poor countries.