In most developing countries, including the Lao People's Democratic Republic (PDR), high prevalence of low quality drugs has been reported. The aim of this study was to explore knowledge and perceptions regarding drug quality among drug sellers and consumers, in Savannakhet province, Lao PDR. Quantitative and qualitative methods were used. Fifty-nine drug sellers and 278 exit customers were interviewed. Eight focus group discussions with drug sellers and community members were conducted. There was inadequate scientific drug knowledge among drug sellers. Only a few customers were aware of the existence of low quality drugs. Only one drug seller knew what constitutes a good quality drug according to the given criteria, and only two drug sellers knew the correct temperature for drug storage. Forty-four per cent had correct knowledge on drug labelling and 73% could read the expiry date. Fifty-eight per cent stated that they bought some drugs from unauthorized sources. Both drug sellers and consumers also elaborated on a local definition of drug quality. They determined drug quality by its perceived efficacy in the sense that a drug is good if it takes the disease away. They also trusted the responsible authorities not to provide them with low quality drugs. A majority of the consumers (73%) did not worry about the quality of the drugs, their greatest problem being financial constraints. People living in urban districts had significantly more knowledge on aspects of drug quality than those living in rural and remote areas. The limitations in scientific knowledge among drug sellers and the low awareness among consumers may contribute to the continued existence of low quality drugs. Government interventions through training of drug sellers and drug information for lay people are suggested.