We describe hypoxemic pneumonia prevalence in outpatient and inpatient settings, in-hospital mortality, and clinical guideline performance for identifying hypoxemia in young infants in Malawi. In this retrospective analysis of a prospective cohort study, we investigate infants younger than 2 months participating in pneumonia surveillance at seven hospitals and 18 outpatient health centers in Malawi between 2011 and 2014. Logistic regression, multiple imputation with chained equations, and pattern mixture modeling were used to determine the association between peripheral capillary oxyhemoglobin saturation (SpO2) levels and hospital mortality. We describe outpatient clinician hospital referral recommendations based on clinical characteristics and SpO2 distributions. Among 1,879 analyzed cases, SpO2 < 90% was more prevalent among outpatient health center cases compared with hospitalized cases (22.6% versus 13.5%, 95% CI: 17.6-28.4% and 12.0-15.3%, respectively). A larger proportion of hospitalized infants had signs of respiratory distress compared with infants at health centers (67.7% versus 56.6%, P < 0.001) and most hospitalized infants were boys (56.7% versus 40.6%, P < 0.001). An SpO2 of 90-92% and < 90% was associated with similarly increased odds of in-hospital mortality (adjusted odds ratio [aOR]: 4.3 and 4.4, 95% CI: 1.7-11.1 and 1.8-10.5, respectively). Unrecorded, or unobtainable, SpO2 was highly associated with mortality (n = 127, aOR: 18.1; 95% CI: 7.6-42.8). Four of 22 (18%) infants at health centers who did not meet clinical referral criteria had an SpO2 ≤ 92%. Clinicians should consider hospital referral in young infants with a SpO2 ≤ 92%. Infants with unobtainable SpO2 readings should be considered a high-risk group, and hospital referral of these cases may be appropriate.