Dynamic signal intensity changes of Wallerian degeneration (WD) are well documented in cases of stroke. These changes have been staged I-IV, depending on time-specific signal intensity changes in corticospinal tract with magnetic resonance imaging (MRI). We performed both prospective and retrospective evaluation of various intracranial lesions to look for evidence of WD and to assess its prognostic implications. Eighteen patients of acute stroke were studied prospectively. Their functional disability was evaluated by using a modified Barthel index of activity of daily living (ADL) at presentation, at 1 month and at 4 months, and was correlated with presence or absence of WD on MRI. 10/18 patients showed signal intensity changes of WD on MRI and their mean ADL score changed from 9.1 at 1 month to 11.4 at 4 months duration suggestive of moderate to severe disability after 4 months of stroke. The rest of the eight patients, where MRI did not reveal signal intensity changes of WD, the mean ADL score improved from 10.37 at 1 month to 17.5 at 4 months, suggesting significant improvement in their clinical disability. 520 patients were studied retrospectively, out of whom 31 showed signal intensity changes of WD in various intracranial lesions, i.e. infarcts (14/220), intracranial haematoma (4/147), arterio-venous malformation (1/20), tumour (6/98), multiple sclerosis (5/20) and encephalitis (1/15). Presence of WD in these intracranial lesions correlated well with persistent clinical disability. This observation has immense prognostic value, particularly in relapsing and remitting disease like multiple sclerosis. We conclude that WD can be seen secondary to any CNS insult with MRI and its presence correlates well with persistent functional disability. It thus has prognostic value.