To assess incidence and preventability of adverse drug events (ADEs) and potential ADEs. To analyze preventable events to develop prevention strategies. Prospective cohort study. All 4031 adult admissions to a stratified random sample of 11 medical and surgical units in two tertiary care hospitals over a 6-month period. Units included two medical and three surgical intensive care units and four medical and two surgical general care units. Adverse drug events and potential ADEs. Incidents were detected by stimulated self-report by nurses and pharmacists and by daily review of all charts by nurse investigators. Incidents were subsequently classified by two independent reviewers as to whether they represented ADEs or potential ADEs and as to severity and preventability. Over 6 months, 247 ADEs and 194 potential ADEs were identified. Extrapolated event rates were 6.5 ADEs and 5.5 potential ADEs per 100 nonobstetrical admissions, for mean numbers per hospital per year of approximately 1900 ADEs and 1600 potential ADEs. Of all ADEs, 1% were fatal (none preventable), 12% life-threatening, 30% serious, and 57% significant. Twenty-eight percent were judged preventable. Of the life-threatening and serious ADEs, 42% were preventable, compared with 18% of significant ADEs. Errors resulting in preventable ADEs occurred most often at the stages of ordering (56%) and administration (34%); transcription (6%) and dispensing errors (4%) were less common. Errors were much more likely to be intercepted if the error occurred earlier in the process: 48% at the ordering stage vs 0% at the administration stage. Adverse drug events were common and often preventable; serious ADEs were more likely to be preventable. Most resulted from errors at the ordering stage, but many also occurred at the administration stage. Prevention strategies should target both stages of the drug delivery process.