Populations living in informal settlements with inadequate water and sanitation infrastructure are at risk of epidemic disease. In 2010, we conducted 398 household surveys in two informal settlements in Nairobi, Kenya with isolated cholera cases. We tested source and household water for free chlorine residual (FCR) and Escherichia coli in approximately 200 households. International guidelines are ≥0.5 mg/L FCR at source, ≥0.2 mg/L at household, and <1 E. coli/100 mL. In these two settlements, 82% and 38% of water sources met FCR guidelines; and 7% and 8% were contaminated with E. coli, respectively. In household stored water, 82% and 35% met FCR guidelines and 11% and 32% were contaminated with E. coli, respectively. Source water FCR≥0.5 mg/L (p=0.003) and reported purchase of a household water treatment product (p=0.002) were associated with increases in likelihood that household stored water had ≥0.2 mg/L FCR, which was associated with a lower likelihood of E. coli contamination (p<0.001). These results challenge the assumption that water quality in informal settlements is universally poor and the route of disease transmission, and highlight that providing centralized water with ≥0.5 mg/L FCR or (if not feasible) household water treatment technologies reduces the risk of waterborne cholera transmission in informal settlements.