The development of irrigation schemes by dam construction has led to an increased risk of malaria in Tigray, Ethiopia. We carried out a pilot study near a microdam to assess whether environmental management could reduce malaria transmission by Anopheles arabiensis, the main vector in Ethiopia. The study took place in Deba village, close to a dam; Maisheru village, situated 3–4 km away from the dam, acted as a control. Baseline entomological and clinical data were collected in both villages during the first 12 months. Source reduction, involving filling, draining and shading of potential mosquito-breeding habitats was carried out by the community of Deba in the second year and routine surveillance continued in both villages during the second year. Anopheles arabiensis was highly anthropophilic (Human Blood Index = 0.73), biting early in the night before people went to bed. The major breeding habitats associated with the dam were areas of seepage at the dam base (28%), leaking irrigation canals (16%), pools that formed along the bed of streams from the dam (13%), and man-made pools (12%). In the pre-intervention year, 5.9–7.2 times more adult vectors were found in the dam village compared with the control village. There was a 3.1% higher prevalence of an enlarged spleen in children under 10 years in the dam village than in the control village during the pre-intervention period, but no statistically significant difference was found in the incidence of falciparum malaria between the two villages during the same period. Source reduction was associated with a 49% (95% CI = 46.6–50.0) relative reduction in An. arabiensis adults in the dam village compared with the pre-intervention period. There were very few cases of malaria during the intervention period in both villages making it impossible to judge whether malaria incidence had been reduced. These preliminary findings suggest that in areas of low intensity transmission community-led larval control may be a cheap and effective method of controlling malaria. Further, large-scale studies are needed to confirm these findings.