Adequate hand washing with soap at five recommended times is particularly important in urban slums in developing countries, but which of the recommended times are the most important in the prevention of diarrhea among children under five years of age living in these areas remains unclear. To address this gap, a community-based cross-sectional study was undertaken in the slums of Addis Ababa, Ethiopia between September and November 2014. Data were collected using a pre-tested structured questionnaire and an observational checklist. Multivariable logistic regression with 95% confidence interval (CI) was used for data analysis. Only 4.4% of the households had hand washing facilities within or near a latrine with soap and water access. The average prevalence of hand washing with soap at the five recommended times was 19.8%. One quarter (24.8%) of caregivers washed their hands with soap before feeding a child, 23.8% before preparing food, and 17.1% after defecation. The most important recommended times in preventing acute diarrhea were before preparing food [adjusted odds ratio (AOR) 0.2; 95% CI 0.1-0.7] and after defecation (AOR 0.3; 95% CI 0.1-0.9). Household size of six or more persons (AOR 2.3; 95% CI 1.4-3.9) and low monthly household income (AOR 2.4; 95% CI 1.4-4.0) were significantly associated with acute diarrhea. Promoting hand washing with soap and advocacy programs at the five recommended times, especially before preparing food and after defecation, and implementation of socioeconomic development programs targeting poor households are essential for increasing the prevalence of hand washing with soap and preventing acute diarrhea in the slums of Addis Ababa.