Neonatal deaths in developing countries make the largest contribution to global mortality in children younger than 5 years. 90% of deliveries in the poorest quintile of households happen at home. We postulated that a community-based participatory intervention could significantly reduce neonatal mortality rates. We pair-matched 42 geopolitical clusters in Makwanpur district, Nepal, selected 12 pairs randomly, and randomly assigned one of each pair to intervention or control. In each intervention cluster (average population 7000), a female facilitator convened nine women's group meetings every month. The facilitator supported groups through an action-learning cycle in which they identified local perinatal problems and formulated strategies to address them. We monitored birth outcomes in a cohort of 28?931 women, of whom 8% joined the groups. The primary outcome was neonatal mortality rate. Other outcomes included stillbirths and maternal deaths, uptake of antenatal and delivery services, home care practices, infant morbidity, and health-care seeking. Analysis was by intention to treat. The study is registered as an International Standard Randomised Controlled Trial, number ISRCTN31137309. From 2001 to 2003, the neonatal mortality rate was 26.2 per 1000 (76 deaths per 2899 livebirths) in intervention clusters compared with 36.9 per 1000 (119 deaths per 3226 livebirths) in controls (adjusted odds ratio 0.70 [95% CI 0.53-0.94]). Stillbirth rates were similar in both groups. The maternal mortality ratio was 69 per 100000 (two deaths per 2899 livebirths) in intervention clusters compared with 341 per 100000 (11 deaths per 3226 livebirths) in control clusters (0.22 [0.05-0.90]). Women in intervention clusters were more likely to have antenatal care, institutional delivery, trained birth attendance, and hygienic care than were controls. Birth outcomes in a poor rural population improved greatly through a low cost, potentially sustainable and scalable, participatory intervention with women's groups.