In an environment of constrained resources, policymakers must identify solutions for financing and delivering health services that are efficient and sustainable. However, such solutions require that policymakers understand the complex interaction between household utilization patterns, factors influencing household medical decisions, and provider performance. This study examined whether and under what conditions out-of-pocket, transportation, and time costs influenced Kenyan households' choice of medical provider for childhood diarrhoeal illnesses. It compared these decisions with the actual cost and quality of those providers to assess strategies for increasing the utilization of high quality, low-cost primary care. This study analyzed nationally-representative survey data through several multinomial nested logit models. On average, time costs accounted for the greatest share of total costs. Households spent the most time and transportation costs utilizing public care, yet were more likely to incur catastrophic time and out-of-pocket costs seeking private care for their child's diarrhoeal illness. Out-of-pocket, transportation, and time costs influenced households' choice of provider, though demand was cost inelastic and households were most responsive to transportation costs. Poorer households were the most responsive to changes in all cost types and most likely to self-treat or utilize informal care. Many households utilized informal care that, relative to formal care, cost the same but was of worse quality—suggesting that such households were making poor medical decisions for their children. To achieve public policy objectives, such as financial risk protection for childhood illnesses and equitable access to primary care, policymakers could focus on three areas: (1) refine financing strategies for further reducing household out-of-pocket costs; (2) reduce or subsidize time and transportation costs for households seeking public and private care; and (3) increase transparency of costs and quality to improve household decisions.