Permethrin is increasingly used for parasite control in bird nests, including nests of threatened passerines. We present the first formal evaluation of the effects of continued permethrin exposure on the reproductive success and liver function of a passerine, the zebra finch (Taeniopygia guttata), for two generations. We experimentally treated all nest material with a 1% permethrin solution or a water control and provided the material to breeding finches for nest building. The success of two consecutive clutches produced by the parental generation and one clutch produced by first-generation birds were tracked. Finches in the first generation were able to reproduce and fledge offspring after permethrin exposure, ruling out infertility. Permethrin treatment had no statistically significant effect on the number of eggs laid, number of days from clutch initiation to hatching, egg hatch rate, fledgling mass or nestling sex ratio in either generation. However, treating nest material with permethrin significantly increased the number of hatchlings in the first generation and decreased fledgling success in the second generation. Body mass for hatchlings exposed to permethrin was lower than for control hatchlings in both generations, but only statistically significant for the second generation. For both generations, an interaction between permethrin treatment and age significantly affected nestling growth. Permethrin treatment had no effect on liver function for any generation. Permethrin was detected inside 6 of 21 exposed, non-embryonated eggs (28.5% incidence; range: 693-4781 ng of permethrin per gram of dry egg mass). Overall, results from exposing adults, eggs and nestlings across generations to permethrin-treated nest material suggest negative effects on finch breeding success, but not on liver function. For threatened bird conservation, the judicious application of this insecticide to control parasites in nests can result in lower nestling mortality compared to when no treatment is applied. Thus, permethrin treatment benefits may outweigh its sub-lethal effects.