Dairy production is a rapidly expanding sector of animal agriculture in lower/middle income countries (LMICs) where small farms generally constitute the majority of producers. Antibiotics are commonly used in dairy medicine to treat sick animals and healthy animals during periods of stress. These uses can improve animal health and productivity but can also contribute to antibiotic resistance among bacteria isolated from animals and humans. Furthermore, when antibiotic residues remain in the final food product, consumers can be chronically exposed to low levels of antibiotics. Residues can also diminish the economic value of the food product through interference with cultures necessary for processed products. Very little is known about antibiotic use on small dairy farms in LMICs. If the judicious use of antibiotics is to be promoted, it is essential to understand how and why antibiotics are currently used on these farms. This study aimed to understand how and why antibiotics are used on small dairy farms in Cajamarca, a major dairy-producing region of Peru, and to improve the methods used to collect this type of pharmacoepidemiologic data. We found that antibiotics are infrequently used (0.48 episodes of treated disease per cow-year) and that few active ingredients are used. The use of antibiotics did not always appear to follow clinical guidelines, a finding that was confirmed by interviews with prescribers (veterinarians and feed-store vendors). The point prevalence of contamination of milk with antibiotic residues on a given day for a commercial milk route was low (0-4.2%), but 92% of farmers who were treating their cows with antibiotics sold contaminated milk. The farmer's knowledge of antibiotics and the purchaser of the milk were significantly associated with the self-reported sale of milk from treated cows. Finally, the use of self-report to collect data on antibiotic use on small farms is inadequate and could be improved by collecting discarded drug packaging from farmers. These findings suggest that improved prescribing practices and management on the farms are needed to improve animal health and the judicious use of antibiotics. In addition, milk purchasers must implement measures to incentivize farmers to withhold milk contaminated with antibiotic residues.