Diatomaceous earth DOESN'T WORK. Also, it's very bad for chickens to breathe it.
Here is how to get rid of lice --
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Boric acid powder (to bathe chicks)
Eprinex pour-on for cattle (to delouse and deworm the chickens)
Glass bottle for spraying olive oil (for applying the Eprinex)
Safflower oil (to dilute the Eprinex to chicken strength)
Leg rings if you have a lot of birds, so you can tell which ones were treated.
Permethrin (to kill lice and mites in the coop and run)
You will also need a clean brooder to raise the chicks for the next 3 or 4 weeks, until the adult chickens and the coop are also free of lice. Many of us just use a large plastic bin with a ceramic heat bulb suspended over it.
BORIC ACID is as non-toxic to people and chickens as table salt. It's deadly to lice and mites.
So you will give each chick a sink bath in warm water with boric acid. Let the chick feel the water as you fill the sink. You will know when the water is warm enough because the chick will stop peeping and actually enjoy the bath.
Add about a tablespoon of boric acid to each quart of water in your sink. It won't all dissolve, but that's fine. The chick may try to drink the boric acid water -- it won't hurt them if they drink a little, but I discourage them from it. I just let them drink all they want of the fresh water coming from the tap.
The lice do NOT like the boric acid bath. They will will try to run up to your chicks' heads to get away from the water when you give each chick a bath. So carefully pour some water over their heads and keep rinsing the lice off.
You will see the lice that came off the birds in the boric acid bathwater. After you think you have washed all the lice off the chick, empty and refill the sink with clean water and boric acid. Bathe the chick in it again, and see how many more lice come off. Repeat until there are NO lice in the clean water.
Don't rinse the chicks when their bath is done. The boric acid residue on their fluff and feathers will help prevent reinfestation if you missed any lice.
Wrap the chick in dry paper towels, and blow-dry them with a hair dryer. Don't get them too hot under the dryer, but don't chill them either. Once a chick realizes the scary dryer isn't going to eat them, they will stop peeping if they are warm enough.
Make sure the chick is VERY dry before you put them into a warm brooder.
Do NOT put them back with the adult chickens until all the lice are gone -- about 3 or 4 weeks, if you do it right.
You will need to bathe the chicks again in 10 days, after any louse eggs have hatched.
DELOUSING CHICKENS with EPRINEX
You probably can't bathe the adult chickens, so you will need to use Eprinex to delouse them. Eprinex is a pour-on livestock medication for killing parasites like lice, mites, bot flies, and several types of worms. It's used off-label to treat poultry for lice, mites, and some types of worms and other internal parasites.
Dosage is 1 ml per 10 kg (22 pounds) of body weight. So a 6-pound chicken needs about 1/4 ml applied directly to its skin.
1/4 ml is just a few drops. You will want to spray more than that under your chickens' wings (where there is usually a bare patch of skin) to make sure you get good coverage.
So to avoid overdosing your chickens, fill your spray bottle halfway with Eprinex, then fill to the top with safflower oil. Shake to blend thoroughly.
As when handling any pesticide, wear nitrile gloves.
Now hold each chicken upside down on your lap. Band the leg if you have a lot of chickens, and find the bare spot on the breast under each wing. Spray the skin and rub the Eprinex to spread it around.
Some birds don't have a bare spot. Just find where the feathers are thinnest and try to spray the skin. Rub it in under the feathers.
Mark the date on your calender. You will need to treat the birds twice more, a week apart, in order to kill all the lice plus the new ones that hatch.
Put all the treated birds into a holding pen so you can treat the coop.
TREATING THE COOP AND RUN
Follow the directions on the package of PERMETHRIN.
Wear eye and face protection.
Remove the feed and water dispensers.
Remove and BURN all old bedding in the coop. If you can't burn it, bag it and take it to the dump. Whatever you do, don't just throw it on the compost heap where wild birds forage for worms and insects, or your birds will be reinfested very quickly.
Spray the entire coop and run, paying special attention to cracks and crevices in the nesting boxes and anywhere your chickens spend a lot of time.
Make sure the Permethrin is completely DRY before you allow the chickens back in.
Permethrin has a residual effect that lasts for several weeks, so you do not need to treat the coop again unless your chickens get lice again several months from now.
Good luck, and please post any questions about treatment!