Hospital admission is distressing and traumatic for children as they are separated from their families and home. Internationally, and in Australia, alternative models of health care are being developed to meet the needs of children and their families. We describe the first eighteen months of the establishment of a paediatric ambulatory and community service in a district health service in New South Wales. Key outcomes include: increased referral to the service from acute hospital and primary care services; parental satisfaction and saved hospital bed-days. Lessons learnt in the setting up of this service include the need for proactive engagement of consumers and stakeholders; clear definition of roles and responsibilities; and measurable and reasonable performance indicators.