Undernutrition (UN) is a worldwide concern affecting morbidity and mortality among children, but the safety and long-term efficacy of its current treatments remain controversial. Recent evidence showing the roles of the gut microbiome (GM) in nutrient absorption indicates its usefulness in alternative interventions to treat UN safely with sustainable amelioration. To enhance our understanding of the GM and childhood undernutrition, we deep sequenced the gut metagenomes of 65 children with moderate or severe undernutrition (UN group) and 61 healthy children (HC group) to identify associated taxa and genes using a two-stage validation scheme. At stage I, 54 UN patients and 51 healthy children were enrolled for the discovery of GM markers in UN children. The accuracy of the markers was then tested in an additional 11 UN patients and 10 healthy children at stage II. Compared to the HC group, the UN group had lower richness in microbial genes (P = 0.005, FDR = 0.005) and species (P = 0.002, FDR = 0.002). The distributions of bacterial genes enable the identification of 16 gene markers with which to discriminate UN patients with high accuracy [averaged areas under the receiver operating curve (AUC) = 0.87], including three Bacteroides uniformis genes that are responsible for the synthesis of iron transporters. We also identified four species markers that enable the UN patients to be confidently discriminated from the HC children (averaged AUC = 0.91), namely Bacteroides ovatus, Bacteroides uniformis, Bacteroides uniformis, and Bacteroides vulgatus. In addition, metabolic comparison showed significantly decreased isobutyric acid (P = 0.005, FDR = 0.017) and increased isovaleric acid (P = 0.006, FDR = 0.017) in UN patients. We also identified notable correlations between microbial species and short-chain fatty acids (SCFAs) and several nutritional indicators, including acetic acid and iron (r = 0.436, P = 0.029), butyric acid and iron (r = 0.422, P = 0.036), butyric acid and lymphocyte (r = −0.309, P = 0.011), and acetic acid and total protein (r = −0.303, P = 0.043). Taken together, the distinct features of gut microbiota in UN patients highlight the taxonomic and functional shift during the development of UN and provide a solid theoretical basis for intervention in childhood undernutrition through gut microbes. © Copyright © 2019 Li, Li, Dai, Wang, Qiu, Feng, Zhou, Wang, Feng, Yao, Liu, Yang, Yang, Xu, Li, Wei and Zhou.