In spite of significant enthusiasm for the principles and methods of total quality management (TQM) in health care organizations, there have been only a few creative programs applying TQM to medical education. In addition, teaching programs are under significant pressure to teach and practice cost-effective medicine and to produce more sophisticated general internists. In July 1992, the governance and operation of the internal medicine training program at Cedars-Sinai Medical Center was restructured to integrate a TQM program with a health services research section and a resource management department. This restructured program transfers significant programmatic responsibility and power to houseofficers. Within the playing field defined through a housestaff values statement and requirements of the Accreditation Council for Graduate Medical Education and the American Board of Internal Medicine, the housestaff have brought about substantial change. The first housestaff survey after the new program was operational for six months revealed that 68% of the 77 respondents felt the housestaff had greater programmatic influence, 68% felt that the rate of program change was "better," and 63% felt the overall training program had improved, while 3% felt it had worsened after the restructuring. Fifty-six percent of the housestaff felt the new program should be continued unchanged, and 29% felt it should be continued with changes. Housestaff teams have approached educational issues, quality-of-care problems, and resource management challenges through formal scientific problem-solving techniques. This article discusses the lessons learned in the first six months and the program improvements that will be attempted in the future.(ABSTRACT TRUNCATED AT 250 WORDS)