OBJECTIVES--To compare prescribing in general practices before and after they become fundholders to assess whether this affected prescribing patterns. DESIGN--Analysis of prescribing data (PACT) for one year before and one year after practices become first, second, or third wave fundholders and comparison with practices that were not fundholders during any part of the study. MAIN OUTCOME MEASURES--Prescribing costs (net ingredient cost per prescribing unit), prescribing volume (items per 1000 prescribing units), net ingredient cost per item, and percentage of generic prescribing. SETTING--Former Mersey Regional Health Authority. SUBJECTS--100 fundholders (20 first wave, 31 second wave, 49 third wave) and 312 nonfundholders. RESULTS--Prescribing costs and volume rose throughout the study in all groups. In all three fundholding waves the rate of increase of prescribing costs was significantly lower than for nonfundholders. Both cost per item and prescribing volume tended to decrease, the former probably because of a significant increase in generic prescribing. Fundholding and non-fundholding practices differed in several respects. CONCLUSION--Fundholding has altered practice prescribing patterns compared with those of nonfundholders, increasing generic prescribing and reducing the rate of increase of prescribing costs.