Understanding antibiotic use in dairy systems is critical to guide antimicrobial stewardship programs. We investigated antibiotic use practices in small-holder dairy farms, antibiotic quality, and antimicrobial resistance (AMR) awareness among veterinary drug retailers in a mixed farming community in the central Kenyan highlands. Data were collected from 248 dairy farms and 72 veterinary drug stores between February 2020 and October 2021. A scale was developed to measure knowledge about AMR and antibiotic use using item response theory, and regression models were used to evaluate factors associated with antibiotic use and AMR knowledge. The active pharmaceutical ingredient (API) content of 27 antibiotic samples was determined using high-performance liquid chromatography (HPLC). The presence and levels of 11 antibiotic residues in 108 milk samples collected from the study farms were also investigated using liquid chromatography tandem mass spectrometry (LC–MS/MS). Almost all farms (98.8%, n = 244) reported using antibiotics at least once in the last year, mostly for therapeutic reasons (35.5%). The most used antibiotics were tetracycline (30.6%), penicillin (16.7%), and sulfonamide (9.4%), either individually or in combination, and predominantly in the injectable form. Larger farm size (OR = 1.02, p < 0.001) and history of vaccination use (OR = 1.17, p < 0.001) were significantly associated with a higher frequency of antibiotic use. Drug retailers who advised on animal treatments had a significantly higher mean knowledge scores than those who only sold drugs. We found that 44.4% (12/27) of the tested antibiotics did not meet the United States Pharmacopeial test specifications (percentage of label claim). We detected nine antibiotics in milk, including oxytetracycline, sulfamethoxazole, and trimethoprim. However, only three samples exceeded the maximum residue limits set by the Codex Alimentarius Commission. Our findings indicate that antibiotics of poor quality are accessible and used in small-holder dairy systems, which can be found in milk. These results will aid future investigations on how to promote sustainable antibiotic use practices in dairy systems.