OBJECTIVES: to test the hypothesis that older people and their informal carers are not disadvantaged by home-based rehabilitation (HBR) relative to day hospital rehabilitation (DHR). DESIGN: pragmatic randomised controlled trial. SETTING: four geriatric day hospitals and four home rehabilitation teams in England. PARTICIPANTS: eighty-nine patients referred for multidisciplinary rehabilitation. The target sample size was 460. INTERVENTION: multidisciplinary rehabilitation either in the home or in the day hospital. MEASUREMENTS: the primary outcome measure was the Nottingham extended activities of daily living scale (NEADL). Secondary outcome measures included EQ-5D, hospital anxiety and depression scale, therapy outcome measures, hospital admissions and the General Health Questionnaire for carers. RESULTS: at the primary end point of 6 months NEADL scores were not significantly in favour of HBR cf. DHR; mean difference -2.139 (95% confidence interval -6.87 to 2.59, P = 0.37). A post hoc analysis suggested non-inferiority for HBR for NEADL but there was considerable statistical uncertainty. CONCLUSION: taken together the statistical analyses and lack of power of the trial outcomes do not provide sufficient evidence to conclude that patients in receipt of HBR are disadvantaged compared with those receiving DHR.