Over a five and a half year period, virological investigations for Japanese encephalitis (JE) were conducted in children admitted with acute encephalitis like illness to a large city hospital. The diagnosis of Japanese encephalitis was made by viral isolation from cerebrospinal fluid and/or a four-fold or higher rise in haemagglutination inhibiting antibodies in paired sera followed by demonstration of specific IgM antibodies by HI test after treatment with 2-mercapto ethanol. All children surviving the illness were contacted by post and followed up for sequelae. A total of 55 children could be followed up after 12-18 months and 22 of these even after 2 yr. A high rate of major sequelae (45.5%) in the form of frank motor deficits (32.7%), mental retardation (21.8%) and/or convulsions (18.2%) was observed. Neurological deficits were of diverse types and improved even after 2 yr of the illness. Fourteen patients (25.4%) had only minor deficits in the form of scholastic backwardness, behavioural problems and/or subtle neurological signs. Only 16 (29.2%) patients were completely normal on follow up. JE may therefore be an important cause of neurological handicap in this area. Sequelae of the disease were more severe if the initial illness was prolonged (P < 0.001, CI 2.45, 12.64), or associated with focal neurological deficits (P < 0.001, CI 1.97, 7.02).