Although administrative health care databases have long been used to evaluate adverse drug effects, responses to drug safety signals have been slow and uncoordinated. We describe the establishment of the Canadian Network for Observational Drug Effect Studies (CNODES), a collaborating centre of the Drug Safety and Effectiveness Network (DSEN). CNODES is a distributed network of investigators and linked databases in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Nova Scotia. Principles of operation are as follows: (1) research questions are prioritized by the coordinating office of DSEN; (2) the linked data stay within the provinces; (3) for each question, a study team formulates a detailed protocol enabling consistent analyses in each province; (4) analyses are "blind" to results obtained elsewhere; (5) protocol deviations are permitted for technical reasons only; (6) analyses using multivariable methods are lodged centrally with a methods team, which is responsible for combining the results to provide a summary estimate of effect. These procedures are designed to achieve high internal validity of risk estimates and to eliminate the possibility of selective reporting of analyses or outcomes. The value of a coordinated multi-provincial approach is illustrated by projects studying acute renal injury with high-potency statins, community-acquired pneumonia with proton pump inhibitors, and hyperglycemic emergencies with antipsychotic drugs. CNODES is an academically based distributed network of Canadian researchers and data centres with a commitment to rapid and sophisticated analysis of emerging drug safety signals in study populations totalling over 40 million.