OBJECTIVE: In sub-Saharan Africa, young women who engage in transactional sex (the exchange of sex for money or gifts) with a male partner show an elevated risk of prevalent HIV infection. We analyse longitudinal data to estimate the association between transactional sex and HIV incidence. DESIGN: We used longitudinal data from a cohort of 2362 HIV-negative young women (aged 13-20 years) enrolled in a randomized controlled trial in rural, South Africa who were followed for up to four visits over 6 years. METHODS: The effect of transactional sex on incident HIV was analysed using stratified Cox proportional hazards models and cumulative incidence curves. Risk ratios were estimated using log-binomial models to compare the effects across visits. RESULTS: HIV incidence was higher for young women that reported transactional sex (hazard ratio 1.59, 95% confidence interval 1.02-2.19), particularly when money and/or gifts were received frequently (at least weekly) (hazard ratio 2.71, 95% confidence interval 1.44-5.12). We also find that effects were much stronger during the main trial and dissipate at the postintervention visit, despite an increase in both transactional sex and HIV. CONCLUSION: Transactional sex elevates the risk of HIV acquisition among young women, especially when it involves frequent exchanges of money and/or gifts. However, the effect was attenuated after the main trial, possibly due to the changing nature of transactional sex and sexual partners as women age. These findings suggest that reducing transactional sex among young women, especially during adolescence, is important for HIV prevention.