Immune-mediated scouring due to ingested parasite larvae is a major concern for sheep producers in Mediterranean climates. We investigated immune-mediated scouring in parasite-resistant Merino sheep in Australia. Forty-adult, parasite-resistant Merino rams were judged to be either susceptible or non-susceptible to immune-mediated scouring on the basis of dag scores taken under field conditions. We hypothesised that the susceptible rams would have lower faecal dry matter during larval challenge than non-susceptible rams and that, at post-mortem examination, inflammatory mediators and granulocytes would be negatively correlated with both faecal dry matter and worm numbers. In pens, the rams received a dose of 500 Teladorsagia circumcincta L(3) and 500 Trichostrongylus colubriformis L(3) each day for 6 weeks before euthanasia. Ten rams acted as unchallenged controls. Challenging sheep with larvae reduced faecal dry matter at 2, 3 and 4 weeks after challenge began and the greatest reductions were with the sheep susceptible to scouring. The sheep showed good resistance to the parasite challenge as evidenced by low faecal worm egg counts and low total worm counts at post-mortem, with the numbers of T. colubriformis particularly low. Sheep with low faecal dry matter had significantly higher numbers of eosinophils in small intestine tissue. Sheep with low total worm counts had significantly higher levels of bradykinin in abomasum mucus. Sheep with more granulocytes in tissue and inflammatory mediators in mucus tended to have fewer numbers of T. circumcincta but there was little relationship with numbers of T. colubriformis. Our results show that dag scores are correlated to a reduction in faecal dry matter, which can be attributed to the challenge with infective parasite larvae. Inflammation during worm infection is associated with rejection of the worm challenge and may result in more fluid faeces and consequently diarrhoea. Therefore, sheep breeders should focus on breeding for both low worm egg counts and also low dag scores.