School performance testing was completed at 8 years of age on 145 children who had had neonatal encephalopathy associated with birth asphyxia as term infants and on a comparison peer group of 155 children. The prospectively identified clinical categories of encephalopathy for the neonates were 56 mild (hyperalertness, hyperexcitability), 84 moderate (lethargy, hypotonia, suppressed primitive reflexes), and 5 severe (stupor, flaccidity, absent primitive reflexes). The mortality rate to 8 years of age was 13%. The incidence of impairment, which included cerebral palsy, blindness, cognitive delay, convulsive disorder, and severe hearing loss, was 16% among those assessed at 8 years (75% of survivors). Intellectual, visual-motor integration, and receptive vocabulary scores, as well as reading, spelling, and arithmetic grade levels for those with moderate or severe encephalopathy, were significantly below (p less than 0.01) those in the mild encephalopathy or peer comparison groups. Predictors of reading performance for the study group included category of encephalopathy, birth weight for gestational age, native language, and mother's educational level (multiple R = 0.58). Nonimpaired survivors of moderate encephalopathy were more likely to be more than one grade level delayed than were children from the peer group (reading 35% vs 15%, spelling 18% vs 8%, arithmetic 20% vs 12%, p less than 0.01). Thus children who had moderate and severe neonatal encephalopathy are at risk for physical and mental impairment and reduced school performance. Children with mild encephalopathy had school performance scores similar to those of their peers.