Background: Parental smoking during pregnancy is associated with lower birthweight and gestational age, as well as with the risks of low birthweight (LBW) and preterm birth. The present study aims to assess the association of parental smoking during pregnancy with birth outcomes in urban and rural areas. Methods: This was a secondary analysis of data collected in the Indonesia Family Life Survey, between 1993 and 2007, the first national prospective longitudinal cohort study in Indonesia. Retrospective data of parental smoking habits, socioeconomic status, pregnancy history and birth outcomes were collected from parents with children aged 0 to 5 years (n = 3789). We assessed the relationships between the amount of parental smoking during pregnancy with birthweight (LBW) and with gestational age (preterm birth). Results: We found a significant reduction in birthweight to be associated with maternal smoking. Smoking (except for paternal smoking) was associated with a decrease in the gestational age and an increased risk of preterm birth. Different associations were found in urban area, infants born to smoking fathers and both smoking parents (>20 cigarettes/day for both cases) had a significant reduction in birthweight and gestational age as well as an increased risk of LBW and preterm birth. Conclusions: Residence was found to be an effect modifier of the relation between parental smoking during pregnancy, amount of parental smoking, and birth outcomes on their children. Smoking cessation/reduction and smoking intervention program should be advised and prioritized to the area that is more prone to the adverse birth outcomes.