BACKGROUND: Neonatal mortality rates are high in rural Nepal where more than 90% of deliveries are in the home. Evidence suggests that death rates can be reduced by interventions at community level. We describe an intervention which aimed to harness the power of community planning and decision making to improve maternal and newborn care in rural Nepal. METHODS: The development of 111 women's groups in a population of 86 704 in Makwanpur district, Nepal is described. The groups, facilitated by local women, were the intervention component of a randomized controlled trial to reduce perinatal and neonatal mortality rates. Through participant observation and analysis of reports, we describe the implementation of this intervention: the community entry process, the facilitation of monthly meetings through a participatory action cycle of problem identification, community planning, and implementation and evaluation of strategies to tackle the identified problems. RESULTS: In response to the needs of the group, participatory health education was added to the intervention and the women's groups developed varied strategies to tackle problems of maternal and newborn care: establishing mother and child health funds, producing clean home delivery kits and operating stretcher schemes. Close linkages with community leaders and community health workers improved strategy implementation. There were also indications of positive effects on group members and health services, and most groups remained active after 30 months. CONCLUSION: A large scale and potentially sustainable participatory intervention with women's groups, which focused on pregnancy, childbirth and the newborn period, resulted in innovative strategies identified by local communities to tackle perinatal care problems.