Background: Neonatal sepsis remains a significant cause of mortality and morbidity in newborns worldwide, accounting for a substantial proportion of neonatal deaths, particularly in low- and middle-income countries. Serum lactate is produced as an end product of anaerobic metabolism, and its accumulation reflects an imbalance between oxygen delivery and consumption, often due to impaired tissue perfusion and cellular hypoxia. Elevated serum lactate levels have been associated with increased mortality in various critical care settings, including adult and pediatrics sepsis. Aim and Objectives: To determine the significance of serum lactate clearance in predicting the likelihood of death and complications in neonatal sepsis. Materials and methods: The present prospective cohort study was conducted on 100 neonates diagnosed with sepsis and admitted to the SNCU and NICU during the study period were included. Neonates were categorized into two cohorts: positive lactate clearance (lactate clearance > 0) and negative lactate clearance (lactate clearance < 0). Both cohorts were monitored until discharge or death to track their clinical course. Patient particulars, including demographic parameters (age, gender, gestational age, birth weight, initial presentation, early/late onset sepsis), Results of conventional markers of sepsis, including: Sepsis screen, blood culture and antimicrobial sensitivity pattern, serum procalcitonin levels, cerebrospinal fluid studies, urine routine examination and culture sensitivity, Initial and final lactate levels and lactate clearance, Mortality rate were measured. Results: The mortality rate was significantly lower in the positive lactate clearance group (6.67%) compared to the negative lactate clearance group (28.57%), with a p-value of 0.008. The duration of oxygen requirement was shorter in the positive lactate clearance group (3.5 ± 1.2 days) than in the negative group (6.8 ± 2.0 days), with a p-value of <0.001. Similarly, the duration of fluid support was shorter in the positive group (4.0 ± 1.0 days) compared to the negative group (7.5 ± 1.5 days) (p < 0.001). The duration of NPM was also shorter in the positive group (2.5 ± 0.8 days) versus the negative group (5.2 ± 1.2 days) (p < 0.001). The duration of hypoglycaemia was shorter in the positive group (1.5 ± 0.5 days) compared to the negative group (3.5 ± 0.9 days) (p < 0.001). Persistent hypoglycaemia occurred in 4.44% of the positive group and 22.86% of the negative group, which was statistically significant (p = 0.016). The duration of ventilation was shorter in the positive group (2.0 ± 0.7 days) compared to the negative group (4.5 ± 1.5 days) (p < 0.001). The mode of ventilation showed significant differences, with more neonates in the positive group on CPAP and NIV, while more neonates in the negative group required invasive ventilation (p = 0.037). Conclusion: In conclusion, the study demonstrates that serum lactate clearance is a valuable predictor of mortality and morbidity in neonatal sepsis. Higher lactate clearance is associated with significantly better clinical outcomes, including lower mortality rates and reduced duration and severity of illness. These findings emphasize the need for incorporating lactate clearance measurements in the management and prognosis of neonatal sepsis, alongside conventional sepsis markers.