The purpose of this study was to describe the rate of permanent placement in aged care institutions (nursing homes and hostels) after hip fracture and to assess whether or not hip fracture is an independent risk factor for institutionalisation. It was a cohort study with median follow-up time of 14 months. Subjects were 291 people living in the community in western Sydney: 13] with hip fractures and 160 controls. Permanent admission to an aged care institution and/or death during follow-up was assessed by telephone interview with study subjects of carers. Data on potential confounders were collected with an interviewer-administered questionnaire at the time of recruitment into the study. During follow-up, 27 per cent of hip fracture cases and 5 per cent of controls were admitted to an aged care institution. The age- and sex-adjusted hazard ratio for hip fracture and institutionalisation was 5.1 (95 per cent confidence interval (CI) 2.2 to 11.9). Adjusting for multiple health-related factors reduced the strength of association but the hazard ratio remained high at 4.0 (CI 1.7 to 9.5). The risk of institutionalisation after hip fracture is high; this is only partly explained by the poor pre-fracture health status of many people who fracture their hips.