Managing acute illness is an important aspect of medical care for nursing home residents, but little data is available on the nature of acute illness in this setting. The aims of this study were to determine the incidence, etiologies, risk factors and outcomes of acute illness in nursing home residents. This was a prospective cohort study of residents at one Veterans Administration nursing home (N = 140). Acute illness episodes were identified prospectively for one year through staff interviews and medical record review. Etiologies of acute illness were determined based on standardized criteria. Subjects were followed for three years to determine hospital utilization, discharge location and survival. There were 113 acute illness episodes identified (0.59 episodes per subject per month). The most common etiologies were pneumonia (33% of episodes), and urinary tract infection (27%). Significant risk factors for acute illness included anemia, dependence in mobility and surveillance time (i.e., duration of time monitored for illness episodes) in the nursing home (model chi 2 27.16, p < 0.001). Subjects who developed acute illness had increased hospital utilization during the first year of follow-up (p = 0.034); they were also less likely to be discharged home by both one year (chi 2 12.37, p < 0.001) and two years of follow-up (chi 2 9.45, p = 0.009). When hospice and respite residents with short stay were excluded, subjects who developed acute illness had lower 3-year survival (Log rank 4.97, p = 0.026), and the rate of acute illness episodes (i.e., number per month monitored) predicted 3-year mortality (Cox proportional hazards, p < 0.001). In conclusion, acute illness is extremely common among nursing home residents, and is most often due to infection. The occurrence of acute illness identifies residents who have increased hospital utilization, are less likely to return home, and have decreased long-term survival.