OBJECTIVE To determine whether characteristics of neighbourhoods in which children live, such as socio-economic disadvantage, physical infrastructure, programs and services, social disconnection, smoking prevalence, and overcrowding, are related to hospitalization rates from birth to age six, independent of individual-level factors. METHODS We studied a population of 8,504 children born in Saskatoon, Canada, over a three-year period (1992-1994). The birth cohort was retrospectively followed until children reached age six. Birth registry records were linked to health care utilization files to create continuous histories of health care utilization for each child. Information on the neighbourhood in which the child's family resided at his or her birth was extracted from Statistics Canada's 1991 Census and numerous local sources. A longitudinal and multilevel design was employed to examine the effect of neighbourhood characteristics and individual-level factors on childhood hospitalization rate. RESULTS Male children, children born to mothers under 20 years of age, Aboriginal children, children in low-income families, and those with adverse birth outcomes had significantly higher rates of hospitalization. In addition to these individual factors, children living in economically disadvantaged neighbourhoods, neighbourhoods in poor physical condition, and neighbourhoods with higher average household size had significantly higher rates of hospitalization. CONCLUSIONS The kind of neighbourhood families live in has an impact on their children's risk of hospitalization, above and beyond the family's own characteristics. These findings provide additional support for a 'healthy community' approach that uses community development and healthy public policy to create safe, health-promoting neighbourhoods for all families.